Daily Commentary

MarketMinder’s View: First, this is entirely about UK politics, so please note MarketMinder favors no politician nor any political party, assessing developments and news solely for potential market effects. While sentiment has warmed globally—and is quite optimistic in the US—it is far lower in Europe and the UK, as this piece demonstrates. It is dripping with what we call, The Pessimism of Disbelief—folks’ inability to see any news as economically positive and cast any development in a negative light. Here the developments in question are tax hikes, which stole headlines all year in Britain. Usually, coverage positions the hikes as a serious economic risk to growth and a bearish development. But when the Budget came and went with no income tax hike and few attempts to raise revenues—followed shortly thereafter by a revision to an earlier inheritance tax hike—those fears looked totally false. But instead of celebrating this better-than-feared economic outcome, this piece argues walk-backs and internal dissension within the Labour Party surrender the government’s credibility—a “deeper problem” since “[Chancellor of the Exchequer Rachel] Reeves cannot decide tax policy and stick to it. She announces measures as settled, defends them as final, then abandons them under backbench pressure. Markets watch this closely. Credibility is not built on slogans about iron discipline but on consistency.” Sorry, but we see this totally differently. Markets pre-price potential changes, and they want inaction so they don’t have to weigh shifting sand. The results we are seeing here amount to less change than markets feared and increased gridlock, which should prevent significant future changes. All that is bullish, as it gives businesses less to adapt to. An “Iron Chancellor” who rams through whatever tax change they think is proper policy without reacting to feedback from businesses seems a whole lot riskier than a malleable one, in our view.

MarketMinder’s View: This article sensibly argues you shouldn’t overthink the Fed’s 9-3 split decision to cut rates earlier this month. We agree with that general thrust. But its case rests on factors unique to the situation: Data quality is poor after the government shutdown and jobs data are hinting at cooling while the personal consumption expenditures price index (the Fed’s targeted inflation measure) is 2.8%, “nearer to 3% than to the Fed’s target of 2%.” So, it concludes, the Federal Open Market Committee’s 12 voting members could see what they wanted to see in the data. But may we suggest this is too timid a thesis? Look, economics is not a science—it is an art, one with many theories, schools of thought and interpretations. This is vital to remember, considering the data these people consult are all backward looking. Monetary policy famously affects the economy at a long and variable lag—so good policymaking should be forward looking, unchained from the latest data print. That means it is subject to individual forecasts, biases and opinions. In any situation like that, healthy debate, disagreement and differences of opinion are positives. Even recent history hints at this. As the op-ed notes, “A split vote is unusual—three FOMC voters haven’t opposed the chairman since 2019.” Well ok. But we didn’t exactly have great monetary policy from 2019 to 2022, when curious decisions to boost money supply massively during COVID lockdowns sent inflation soaring in the first place. Maybe they ought to disagree more.

MarketMinder’s View: So if you couldn’t tell from the headline, this piece dives into the continued shots President Donald Trump has been taking at Fed Chair Jerome Powell, so it is highly political. Reminder: MarketMinder favors no political party nor any politician, assessing developments solely for potential market effects or lack thereof. We think this news fits the latter category. Yes, yes, Fed “independence”—to the extent it has that—is an important issue worth monitoring in the new year. But not because of threats to fire Powell. Why? The Supreme Court has already ruled the president can do so only “for cause”—and it is unclear whether the court would consider oversight of a building project justifiable “cause.” But that is a hint for you right there: If Trump’s talk isn’t just noise—as most of his threats against Powell have been—the attempt to fire him would very likely be forestalled and hung up in court. Meanwhile, Powell’s term is already set to expire in May. In other words, he could serve out the rest of his term whether Trump tries firing him or not. Folks, in our view, this is noise. The news on this front will come in whom Trump selects to replace Powell when May arrives, whether Powell remains on the Fed board (his term has time left), and how the new chair and Federal Open Market Committee set policy after they are all in place. Anything other than that at this point is speculation on something highly discussed and, very likely, pre-priced.