Will the Fed Crush the Trump Boom?
All year asteroids have been bouncing off this economy.
Tariffs that Paul Krugman promised would crush the economy
The biggest shooting war in 20 years
Hundred dollar oil
And an AI jobs apocalypse that’s supposed to turn our labor market into a Doordash circle jerk.
Yet growth and jobs just keep going.
The Atlanta Fed’s GDPNow says we’re at a robust 3% growth. Jobs are coming in double expectations, with job openings soaring the second-biggest on record.
But there’s a very dark cloud: The Federal Reserve.
Why The Fed Fears a Strong Economy
Last week the Wall Street Journal ran some Fed doom-porn warning of a “collision” between the Fed, the bond market, and Donald Trump, driven by oil prices, booming jobs, and the inflation they bring.
We’ve already got rebellion brewing, with Fed members calling for pre-emptive hikes, while markets went from expecting three cuts this year to expecting rate hikes as early as 6 months.
Now this matters because every point of Fed hikes are worth about one million jobs.
Which matters if you’re one of those million and happen to vote.
So the background is the Fed is a licensed counterfeiter bribed into existence by Wall Street in 1913. The counterfeiting proceeds go mainly to borrowers who get cheap loans from artifically low interest rates -- in case you wonder why Americans don’t save money.
With a fat cut for Wall Street.
So it’s a permanent siphon from savers to Wall Street and deadbeats.
But the key is the swindle’s gotta be subtle. When you’re stealing gas from the neighbors, you gotta take a gallon here, a gallon there. Start draining tanks and the gig’s up.
For the Fed that means keep price inflation to around 2%. Not because of science, but because experience says at 2% voters don’t grab pitchforks and tell Congress to fix the Fed.
They definitly grab pitchforks at 10%.
The problem at the moment is since the Iran war oil prices have driven inflation to 9.3% annualized -- right on the edge of pitchforkery.
And jobs are booming on top of that it’s great for 340 million Americans but terrible for the Fed jobs implies loans, Wall Street prints those loans out of thin air -- thanks to the Fed -- and inflation goes up even more.
In short, oil and jobs turn the Fed’s 2% siphon into a double-digit flood.
What’s Next
I warned about the Fed when the war started, saying oil won’t crash the economy, but a Fed panic will.
Because historically, oil shocks only deliver recession when the economy’s already limping -- like in the 70’s, when the oil embargo came right after the Nixon Shock.
But before this crisis we were at 4% growth and -- 3 months in -- we’re still at a perky 3%.
If the war ends tomorrow, inflation drops, and Kevin Warsh gets back to finding excuses for rate cuts to goose jobs -- he’s already said he thinks AI will be epic deflation.
But if the war keeps going, Warsh has two options: purge the Fed’s balance sheet, selling the $7 trillion of bonds they bought with past money-printing.
That cancels the dollars and lowers inflation. But it’s also not happening, with prediction market kalshi predicting an increase of Fed holdings.
Leaving the path of least resistance if the war keeps going: Hike rates til you gobble enough jobs that prices crash and Americans are back to cat food.
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