It is understandable that the new kid in class wants to make an impression. But being different just for the sake of being different is not going to impress anyone.
The new governor at the Federal Reserve, Stephen Miran, who was shoehorned into the US central bank by Donald Trump, thought it would be a good idea to be an outlier. He voted against the quarter-percentage-point cut in favour of a half-point reduction in the Fed fund rate this month.
He was, amusingly, the only dissenter on the 12-person committee. He also claimed that even though he had spoken to Donald Trump ahead of the meeting, he had not been influenced by the president.
Meanwhile, The White House is still trying to sack Governor Lisa Cook, who remains on the rate-setting committee. The ousting has been put on hold until the Supreme Court makes it ruling as to whether the president can fire any governor he wants at will.
Despite the high drama at the Fed, it appears, thankfully, to be business as usual. The rate-setting committee was overwhelmingly unconvinced by Miran’s flaky arguments that Trump’s crazy tariffs will not be inflationary.
Contrary to his assertions, those tariffs are already pushing up prices. Incidentally, Xbox prices in the US are going up but not for other countries. We have to ask why.
He also claims that foreign countries are paying the tariffs, which is also not true. American importers are paying the tariffs, and they will eventually be passing those cost increases to consumers. So, higher, rather than lower, inflation could be on the way.
After the meeting, Fed chair, Jerome Powell, said that the only way to move things around is to be incredibly persuasive by making really strong arguments. He said data and an understanding of the economy is important.
It goes without saying that economics is not an exact science. If only it was. But it still needs to be couched in common sense. The FOMC is not a gathering of Flat Earth Society advocates.
As for me, whether the Fed raises, lowers or keeps interest rates on hold is not going to change the way that I invest. As an income investor, I buy income, preferably rising income. There is nothing more satisfying than watching dividends drop into my bank account.
It is quite possible that the Fed could put its fight against inflation on the back burner, as it deals with a weakening US labour market. But that is all the more reason for us to continue investing in assets that can generate income that can rise faster than the rate of inflation. We are on our own.
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Disclosure: David Kuo does not own any of the shares mentioned.
