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June
28
2025
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The Powell Fed is Going to Trigger Another Crisis
I’m not saying this for dramatic effect. Powell’s ignorance of basic macroeconomics was on stark display in his testimony before Congress earlier this week (h/t Bill King). For months now, the Powell Fed has been warning that inflation was about to appear courtesy of the Trump administration’s tariffs/ trade war. Powell personally has commented that he firmly believes that tariffs would ignite inflation… and that it is prudent for the Fed to NOT cut rates because of this. However, for all his concerns about inflation, the Fed Chair has just revealed he doesn’t even know the breakdown of the official inflation data. And no, I’m not exaggerating here. In one of the most shocking moments in Fed Chair history, earlier this week, Fed Chair Powell was asked by Representative Jim Hines what percentage of the Consumer Price Index (CPI) is comprised of energy data. Powell’s answer? “I don’t know that off the top of my head.” Here’s the transcript of the actual interaction along with a link the video on YouTube (the exchange starts at 01:22:20). Rep Jim Hines (01:22:20): As a technical matter, we tend to refer to CPI, which is a basket of goods and we measure the price changes. Roughly speaking, what percentage of that basket is comprised of energy? Powell: I don’t have that on the top of my head. It’s much less than it was, of course. Oil consumption is much less than it was in the ’70s as a percent of GDP, but it’s come… Rep Hines: But energy includes natural gas and gasoline and that sort… It’s a meaningful portion of the basket? Powell: Yes, of course, we have so much natural gas, so that’ll always be there for us. Rep Hines: At what price point does the American household begin to feel some inflationary effects? Powell: I don’t want to throw out a number. Frankly, it’s too early to say that something like that’s going to happen. And I know you know that, but I wouldn’t want to throw out a specific number. If prices went up materially, people would feel that…
So… the Fed Chair doesn’t know the breakdown of the official inflation measure in the U.S.: the Consumer Price Index or Cpi. Moreover, when describing the U.S.’s energy needs and inflationary impact of price increases, he says things like “we have so much natural gas”… and “If prices went up materially, people would feel that.” This represents a SHOCKINGLY pedestrian understanding of some of the most critical items under the Fed’s purview. Jerome Powell is not some random economist working at a think tank… he’s the single most powerful central banker in the world: the individual most in control of U.S. monetary policy which shapes the trajectory of the largest, most dynamic economy in the world as well as the world’s reserve currency. And he doesn’t even know the basic breakdown of the inflation data… the very thing he’s been so worried about for months! This is going to end in disaster. The Fed is taking the WRONG approach with the economy: focusing excessively on a potential risk while REAL risks are appearing in the labor market. First and foremost, year-over-year change in total non-farm payrolls indicates job growth is slowing. Growth is now hovering around just 1.19%. This is hardly the stuff of a robust labor market. It’s actually the weakest number in the post-pandemic era!
Moreover, the individuals who lose their jobs are not finding new ones rapidly. Consider the below chart of the number of people unemployed for over 27 weeks. This is obviously not going in the right direction. Indeed, it’s now well above the levels in 2018 at which the Fed commenced its last easing cycle in earnest.
The same is true for job openings. Here again the data has rolled over and is trending down. I would also note that this graph is at the same levels it hit in 2019 when the Fed was cutting rates aggressively.
Finally, and most worrisome, the average weekly hours for all employees has collapsed. The only time it’s been lower in the last two decades was during the pandemic and the Great Financial Crisis!
Add it all up and job growth is slowing… the number of people out of work 27 weeks is rising… and the average hours people are working per week is dropping. These are all serious issues and as the above charts illustrate, they’ve trending down for months. And the Fed Chair is worried about inflation… even though he can’t even breakdown what data comprises it! Nothing good can come from this. Indeed, I wouldn’t be surprised to see a stock market crash hit some time in the future when the economy finally rolls over, and the Fed realizes that once again, it’s WAY behind the curve on monetary policy, With this in mind, we’re keeping a close watch on our proprietary Crash Trigger: a signal that has flashed before every major market downturn in the last 50 years. We detail it, how it works and what it’s saying about the markets today in How to Predict a Crash. Normally we’d sell this report for $499, but in light of what’s happening today, we’re making just 99 copies available to the investing public. To have a copy delivered to your inbox... Graham Summers, MBA Chief Market Strategist Phoenix Capital Research
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Graham Summers, MBA is Chief Market Strategist for Phoenix Capital Research, an investment research firm based in the Washington DC-metro area.