Forward Guidance Welcome to Peak Monetary Policy Theater | Weekly Roundup
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Jul 26, 2025 This week, the hosts delve into the drama surrounding the Federal Reserve's independence, sparked by a visit from Trump. They explore the effects of this politicization on future monetary policy. The conversation shifts to the surprising divergence in inflation expectations and commodity prices. With real yield correlations breaking down, they analyze the evolving role of the dollar. Humor adds a light touch as they navigate the complexities of market dynamics, highlighting challenges in housing affordability and the intricacies of debt management.
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Fed Independence Erosion
- Fed independence is eroding and this will likely be a multi-year trend.
- Politicizing monetary policy risks unanchoring inflation expectations and damaging credibility.
Inflation Expectations Diverge From Commodities
- Market break-evens are rising despite stable or falling commodity prices like oil.
- This signals underwritten inflation risk and a fading chance of disinflation or deflation below 2%.
Trump-Powell Visit: Negotiation Tactic
- Trump’s visit to Powell and rhetoric is likely a negotiation tactic rather than an immediate threat.
- The risk of politicized Fed leadership is real but not imminent, requiring Senate confirmation for any changes.