In December 2024 I took the Fed to task for prematurely making another rate cut. This one was 25 basis points. On top of the 50 basis point cut in the fall, the Fed was obviously easing too fast too soon.
The January inflation report was hailed by many. I don’t know how anyone can look at this positively. Here’s the bad news.
That’s January 2025. Month over month the CPI increased 0.47%. That’s a 5.75% annual rate, almost 2.9 times the Fed’s target of 2%. Even year over year, the rate was 3%. Here’s the rest of the bad news. Notice that every single line slopes upward heading into 2025.
When the Fed cut rates in December, I made an educated guess that Jerome Powell and his pals were setting an inflation trap for the Trump administration. High inflation would put a serious crimp in fiscal flexibility. In particular, tax cuts and expansionary spending would be difficult. Even renewing the expiring TCJA from the first Trump term would be in danger. In effect, that would be a tax increase, putting more downward pressure on economic growth. Stagflation anyone? Anyone?
