Powell cuts rates while prices rise, exactly like I said he would
If anyone thinks I am above being petty – you are wrong.
Remember when I told you Trump was manufacturing his own rate cut through tariff inflation? Well, here we are. The Fed just met and cut rates by a quarter point, exactly as I predicted.
Powell’s been telegraphing this since his Jackson Hole speech in August, which I posted, and the writing was on the wall the moment Trump’s tariffs started hitting consumer prices.
But let’s talk about all the pushback I got when I first laid this out. The most common response was some variation of “but the Fed only raises rates to fight inflation” – as if Powell was somehow going to ignore basic economics and jack up rates while the economy was already getting crushed by Trump’s trade war.
These critics were stuck thinking about textbook inflation.
The content below was originally paywalled.
You know, the kind where people have too much money, they buy more stuff, prices go up, and the Fed raises rates to cool things down. That feedback loop actually works because you’re dealing with demand-side pressures.
Tariff inflation is a completely different animal. It’s not demand-driven – it’s a tax that gets slapped onto imports and passed directly to consumers. The Fed can’t make Chinese goods cheaper or fix supply chains by raising interest rates. When tariffs hit, they create the exact opposite problem most people expect: prices go up while economic activity slows down.
That’s textbook stagflation territory, and it puts the Fed in an impossible position.
The research backs this up. The Boston Fed found that tariffs create immediate price shocks but don’t respond to traditional monetary policy tools. The San Francisco Fed estimated that Trump’s tariffs could push investment goods prices up nearly 10% and consumption goods up over 2%. You don’t fight that kind of inflation with higher rates – you can’t.
Powell himself has acknowledged this distinction multiple times. He flat out said the Fed went “on hold when we saw the size of the tariffs” because inflation forecasts “went up materially as a consequence.” The guy running the central bank understood what tariff inflation actually does – apparently more than his critics.
Here’s exactly what happened, just like I said it would.
Trump’s tariffs started hammering consumer prices. The Consumer Price Index jumped to 2.9% in August, with imported goods like clothing and electronics seeing massive price spikes. Meanwhile, job creation collapsed to just 22,000 in August, and previous months got revised downward.
So Powell found himself in precisely the bind I predicted.
Inflation rising due to tariffs, employment cratering, and two terrible options: raise rates to fight supply-side inflation and crush an already fragile job market, or keep rates high and get blamed for the economic carnage while Trump plays victim.
The solution was always going to be rate cuts. Not because tariffs don’t cause inflation – they absolutely do – but because the Fed can’t solve supply-side price shocks with demand-side tools. When you’re facing stagflation caused by external factors, central banks historically choose to support employment over fighting inflation they can’t actually control.
Trump knew this playbook cold. He’s been demanding rate cuts since day one, not because he’s some monetary genius, but because he understood exactly what political pressure his tariffs would create. Create inflation, force Powell’s hand, then profit from the predictable policy response.
Those Trump bond purchases I wrote about are looking pretty smart right about now. Buy $100 million in bonds before you manufacture the conditions that force rate cuts, then cash in when rates drop. Bond prices have already started climbing in anticipation of today’s cut.
Powell even admitted recently that current policy is “in restrictive territory” and that “the shifting balance of risks may warrant adjusting our policy stance.”
Translation: Your president’s trade war left us no choice but to cut.
The Fed governors who dissented at July’s meeting – Bowman and Waller – both wanted cuts then, marking the first time since 1993 that two policymakers dissented in favor of lower rates. They could see where this was heading before Powell was ready to say it out loud.
So to everyone who lectured me about how “the Fed only raises rates to fight inflation” – you were thinking about the wrong kind of inflation. Tariff inflation doesn’t work like normal inflation. It’s a supply-side tax that shows up as rising prices but doesn’t respond to monetary policy the same way demand shocks do.
The Fed has a dual mandate – price stability and employment. When tariffs are crushing both sides of that equation simultaneously, rates have to come down. That’s not economics textbook theory – that’s reality.
Trump got exactly what he wanted. Higher prices for consumers, economic uncertainty for businesses, a Fed forced to ease policy, and a personal bond portfolio positioned to profit from the whole scheme.
#ratcclips