Daily Commentary

MarketMinder’s View: This piece echoes the thoughts of many financial pundits, we suspect, in offering surprise at the lack of reaction in virtually any corner of markets after the news broke over the weekend that the US Department of Justice was investigating the Fed for alleged false statements made by Fed Chair Jerome Powell to Congress. As this notes, it looks like an escalation in the Trump administration’s efforts to put Fed policy under its thumb, eradicating Fed “independence.” So why so little shock or reaction? We agree with one piece of this—that Fed independence is really a continuum, not a singular truth. All, and we mean all, Fed officials are political animals. So the question really boils down to whether monetary policy is being set on political whims to curry voters’ favor or not. To date, there is no evidence it is—or soon will be. But this column also misses a few crucial facts. One, markets pre-price widely watched worries. The administration and Fed have been squabbling for over a year. This is the latest in a long run of news on that front—it isn’t shockingly new. Two, it may have the reverse effect. As we noted yesterday, the administration’s push may lead Fed Chair Jerome Powell to stay on as governor after his term as chair ends in May. If so, Trump would have fewer seats to fill on the Federal Open Market Committee, the 12-member board that votes on monetary decisions. And the officials that are there may see this effort as an affront. Now, if they did, note: That would be a political decision. But it suggests the risk of inflation or monetary error really didn’t change much in the last few days.

MarketMinder’s View: Riding a wave of post-Liberal Democratic Party (LDP) election popularity—augmented by her strong position on Taiwan documented herein—Japanese Prime Minister Sanae Takaichi is reportedly considering calling early elections. The next Diet election scheduled isn’t until 2028, but this article suggests she may dissolve parliament as soon as late January, ushering in a snap vote next month. Her aim, naturally, is to use that popularity wave to grab back the LDP’s majority—thereby clearing the way for big fiscal stimulus packages. Many see this as rekindling the so-called Takaichi Trade, which presumes big spending means a weak yen, rising exporter profits and booming Japanese stocks. Yet all of that is a theory with big holes—namely, the presumptions she will call elections, will win a majority, will pass big stimulus and that big stimulus will boost growth and stocks, which wasn’t really true during the 2009 – 2020 period, despite numerous supplementary budgets. What it likely will do is boost uncertainty in the short run, a possible headwind for Japan. That being said, murmurs of early elections have swirled near constantly since Takaichi took office, so markets likely aren’t all that surprised by this rumored development.

MarketMinder’s View: With all due respect, this is a very flawed look at today’s US consumer price index (CPI) report for December, which showed headline prices rose 2.7% y/y again, matching November’s rates. Core prices also rose 2.6% for the second-straight month. Where we quibble with this piece is in its skeptical and warning attitude toward future price shifts. It cautions that a “burst of inflation” could come from tariffs, as firms work through lofty inventory—which is hugely unlikely. Firms aren’t likely to burn through inventory concurrently, and there is little sign tariffs have had much effect on prices yet. Which is logical, considering they channel demand more than they hit prices economywide. Tariffs aren’t good, but they aren’t hugely inflationary, either—especially considering the effective rate is so much lower than people feared last April. That isn’t all. It harps on high prices as hammering households, which may be so. But that is all about past inflation, which isn’t likely to reverse. Price levels stem from inflation, not the other way around. And for all the talk of shutdown-related distortions herein, the fixation on housing costs misses a point or two: One, in the real world, rents and mortgage costs don’t fluctuate month-to-month. The Bureau of Labor Statistics’ estimates of these are just guesses—and owners’ equivalent rent (what data nerds project you would pay to rent a home you own)—is a fiction anyway. So set all that chatter aside. Instead, zoom out: CPI trended between 2.3% and 3.0% all year. That range is right in line with the long-term average—and the Fed’s ability to tweak it lower at the margins is super limited. All in all, fixating on CPI and inflation is, at this point, fighting the last war. You have to look forward and not backward to properly assess economic and market risks. This isn’t it.