As of  September 10, the case is clear on what the Fed should do. The Producer Price Index (PPI) was significantly less than expected at -0.1 percent for August, and the employment numbers for June were extremely weak. Just 22,000 jobs were created. Recent consumer confidence surveys also indicate that consumers rate the job market as the weakest in recent history. 

The mandate of the Fed is to keep inflation low and jobs plentiful. Well, right now, the recalcitrance of Fed Chairman Powell has created just the opposite. While he admitted during his Jackson Hole speech that interest rates could be coming down soon, he would not give in on his stance that tariffs are inflationary. Whoever gave him his PhD in Economics should rescind it or lose its accreditation. 

Mom and Pop don’t need that degree to know what is going on. When costs increase but there is no corresponding increase in income, people get poorer. Plain and simple. Americans under the Powell dogma have suffered. Now is the time for the Fed to make up ground. Yet after an expected 25 bp rate cut this month, the futures markets remain muddy. The probability of accelerated rate cuts over the next few months is still fairly low. 

All this means is there is an opportunity. While short-term traders sleep, investors should jump in and grab these short-term yields while they can. When the market wakes up, the Fed Funds rate over the next 18 months could reach two handles. 

Yet for now, the brakes are fully applied. Let’s see how fast they wear out.