Jerome Powell's Fed Enters "Nightmare Territory"

A 25bps cut. Great. Now, what's next?

By now you already know the Federal Reserve cut its benchmark interest rate by a quarter point to 4.00–4.25% in an 11–1 vote today, citing rising risks to the labor market as their excuse for doing so.

While newly appointed Governor Stephen Miran pushed for a deeper cut, most policymakers backed the smaller move, with the Fed signaling two more reductions are likely before year-end.

Chair Jerome Powell framed the decision as “risk management,” noting slower job growth and persistent inflation, though he rejected calls for a half-point cut.

So, what did the cut and the ensuing press conference tell me that you’re not going to hear on CNBC? This cut marks the beginning of what I believe is going to be “nightmare territory” for the Fed.

First, while many were quick to celebrate “less dissent” at the Fed, the board’s outlook was still all over the place. But it’s more than just a mixed bag of good-natured disagreements. The narrative is that Trump’s “ringer” at the Fed wants much larger cuts than anybody else, raising the risk that the market could see the Fed losing what little “independence” it is perceived to still have.

The market seeing the wide range of Fed opinions not as healthy disagreement, but as a loss of confidence, would be serious shit. Blurring these lines is like letting the inflation “genie” out of the bottle: once it happens, it can be impossible to walk back without severe consequences.

As an investor, I’ve been preparing for this, but the distortions it could create—and the consequences for everyday Americans, especially runaway inflation—could be catastrophic.

Powell’s press conference, which just concluded, offered nothing of substance whatsoever. Not even a hint of a tangible solution or clear path forward. Instead, it was an hour of doublespeak, vague qualifiers, and hedging, which basically summed up to this: “We cut today because the pressure to do so was overwhelming, and because the labor market gave us cover. But we really have no idea how we’re going to balance our two objectives—price stability and maximum employment—going forward.”

The only thing the conference made clear is that we were right to assume the Fed is going to swing back and forth between its mandates for cover, working the gas and the brake at the same time, whenever and however it suits them. Either way, it doesn’t matter — whichever mandate it chooses to address, the outcome is the same: more inflation.

If the Fed prioritizes the labor market, it’ll cut rapidly, and inflation—which is still nowhere near the Fed’s 2% target—will continue to run rampant. If it tries to be a hero and fight inflation, it risks triggering both an economic and an inflationary depression across markets.

Nothing today changes the view I’ve had. The Fed is cutting rates, but not quickly enough. As I’ve said before, the gears of the economy are already stuck and will soon start moving in reverse. The stock market will then go through sharp deleveraging and a downturn, forcing the Fed to cut faster—a possibility Powell himself alluded to today when talking about the pace of cuts.

After that, the bond market will keep pushing yields higher at the long end of the curve, signaling that both the Fed and the country have lost credibility and creditworthiness. At that point, the Fed will start buying bonds, which will push the inflation machine into overdrive and keep us on the path toward the monetary reset I’ve been warning about for years.

I was appalled when Janet Yellen became Treasury Secretary after serving as Fed Chair. I couldn’t believe that after her tenure at the Fed she didn’t just retire and watch the system self destruct while trying to find the worm at the bottom of a tequila bottle somewhere on a Mexican beach. And somehow, despite the damage she’s done as Treasury Secretary, the economy hasn’t yet imploded and the Fed hasn’t yet lost all credibility.

Now, whenever it does happen, I think Powell will wind up taking the blame for both—especially if you ask President Trump. I can’t help but think Powell is counting down the days until he’s relieved of his duties. He’s in an extremely unenviable position as the Fed enters this “nightmare territory” where it simply will not be able to maintain balance between its two mandates. And even if he slips out before everything collapses, it’ll be “Powell’s Fed” that will be left to face the music and take the blame shortly after.

Nothing about today’s Fed action changes my outlook. For my latest thoughts on how I see the next 12 months playing out for the macro economy, listen to this interview—and for how I’m positioning myself, read this piece I published just hours ago.

Course Correcting Heading Into 2026

Vaya con Dios, my kind subscribers.

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