The Fed Holds, Markets Tremble, and A Memorandum Makes Overtures to Fiscal Responsibility
Addison Wiggin / January 29, 2025
“Our discussions of the economy may sometimes ring in the ears of the public with more certainty than is appropriate.”
— Jerome Powell
January 28, 2025 – Well, it’s Jerome Powell’s big day. The financial press, comme d’habitude, is obligated to spend inordinate hours speculating what goes on behind closed doors at 1850 K St NW, Washington, DC.
Like a magician nervously prepping for his stage act, Mr. Powell will again articulate the Federal Reserve’s grand vision — or, more likely, assure us that they have a handle on the mess they helped create over decades of irrationally low rates.
Will he explain today, that the Fed’s balance sheet went into the red on September 15, 2022? Or that the bank no longer sends remittances to the Treasury to help balance the nation’s books the way it had done for the first 112 years of its existence?
Not likely.
The news cycle is short, so we’ll hear what their immediate plans are.
The consensus view — 9 in 10 economists polled by FactSet—is that the Fed will hold its benchmark rate steady today at its current range of 4.25% to 4.5%.
Not only did the Fed meet expectations, they also removed verbiage in their statement about inflation making progress towards the central bank’s target goal of 2%.
Most also predict Powell will hold off on cutting rates in March, meaning the next possible move might not happen until May 7. Translation? More waiting, more hand-wringing, and more market drama over the same recycled headlines.
Wall Street, as usual, is sitting on the edge of its seat, pretending that today’s pronouncements will provide actual clarity.
The reality? The economy continues to stumble forward, half-dazed, waiting for the next sugar high of liquidity. Traders will respond in kind.
In the background, while I’m wrapping my head around the macro data for the day, poor voice-challenged RFK Jr. is being skewered for views he doesn’t necessarily hold in the Senate and not being allowed to actually answer a single question.
Meanwhile, Trump is rolling out the greatest hits from the campaign trail, publicly staging deportation raids in a city near you and promising an onslaught of tariffs that’ll make Smoot-Hawley look like a friendly misunderstanding.
The memorandum the Office of Management and Budget (OMB) sent its constituent parts instructing them to pause spending while the budgets are reviewed for political pet projects caused the most entertaining round of confusion among legacy media pundits.
It was almost worth the time to watch Stephanie Ruhle try to make sense of her own purpose now that Biden and Harris have dropped from the headlines.
Powell, Trump, and JD Vance are all out in front against a backdrop of confirmation theatrics in Congress and the political circus where the same people who voted for reckless spending are now pretending to care about inflation, or the average citizen’s health, in the case of RFK Jr.
Amid this monetary and political business-as-usual, the stock market is what it is. It’s still trying to process DeepSeek.
The AI-fueled Mag 7 bubble, which we’ve been concerned about for more than a few of the 62 days the indexes hit historic highs in 2024, is stretching relatively thin.
On Monday, the S&P 500 Information Technology Sector Index saw its most significant single-day decline since September 2020, dropping 5.6%.
Nvidia (NVDA), the bellwether in the AI chip market, has been particularly volatile. On January 27, it plummeted nearly 17%. As of this morning, NVDA is trading at $121.19.
As we mentioned yesterday, Monday’s session is equally worth acknowledging as the flash crash on August 5, 2024, if for no other reason than the rising Wall Street index’s impact on the psychological health of traders, individual investors, and everyday Americans going about their business daily.
To put this all into perspective… and even to show why the financial media noodle over the Fed announcements… why we’re expecting Donald Trump and Scott Bessent to put pressure on the Fed to lower rates… let’s look at some macro data bullet points:
* The Mag 7, even after Monday’s selloff, represents a quarter of the overall U.S. stock market.
* Their combined market cap of $13.2 trillion is more than four times the size of the Russell 2000 Index, which consists of 2,000 small-cap stocks and has a market cap of nearly $3 trillion.
* The Mag 7’s market cap is higher than any non-US stock market in the world
* It surpasses China’s A-share market, currently the world’s second-largest stock market.
* The Mag 7’s combined market cap is more than double that of Japan’s stock market.
* It is nearly equal to the combined size of the stock markets in the UK, Canada, and Japan.
Microsoft alone, with a market cap of nearly $3 trillion, is worth more than the entire Canadian stock market.
As we’ve pointed out ad naseum, the current level of market concentration is unprecedented going back decades, highlighting the outsized influence of these technology giants on global financial markets.
Every bull market has its idols — this one has Nvidia, Microsoft, and a handful of tech behemoths trading at nosebleed levels, all propped up by the belief that AI will fix everything from productivity to personal finance.
But even golden calves crack under pressure, and price movements this week hint that the bubble may be losing its helium.
The market fallout from all this? A waiting game. Powell is not likely to say anything too aggressive, revealing, or helpful in his statement.
Hedge fund managers still whisper about soft landings, but Main Street still sees higher credit card balances, stagnant wages, and a housing market that makes renting a shoebox in New York feel like a luxury purchase.
Trump, never one to shy away from a trade war, is doubling down on protectionism — because why not pour gasoline on the inflationary fire?
If he follows through, expect supply chain snarls, corporate groveling, and another round of “surprise” price hikes at Walmart.
So here we are, my friend, watching Powell perform on center stage while the economy keeps chugging along, waiting for its next masterstroke — or mistake. My bet? More muddling through, more volatility, and more reminders that the people in charge never really are.
If nothing else, Fed Day gives us a chance to lean back with some freshly brewed coffee and look over a wide array of data. Then get back to business: poking fun at the financial media. It’s almost satisfying. But doesn’t really help us make any money.
Buy gold, try crypto, but keep your capital safe in dividend-paying stocks, or take a good position in energy stocks. There was a selloff yesterday, so oil-related companies, for example, might be a good buy today. For more ideas, review your Grey Swan “model portfolio” here.
Regards,
Addison Wiggin,
Grey Swan
P.S. Tomorrow, we’ll be releasing some research we began in the fall forecasting the potential trajectory of the gold price, and multiple ways to play that trend.
Our research includes Federal deficit spending, the illusive money supply, various “sticky” macroeconomic data points and Trump-inspired political trends. It’ll be worth your time to take a look. Stay tuned…
P.P.S. “Right bleepin’ on to you, reader, Ms. Therese-Marie O’,” our friend Basil writes. “Kudos!!! She seems to have made all the ‘right moves’. Obviously, it was well-earned and deserving.”
You may recall we published a rather lengthy story from Therese-Marie here on Monday. “It is nearly 5:00 pm here in Denver, Colorado,” Ms. O’ had begun her correspondence, “and I have finished my day with your email. Since you welcome comments and apparently read them, let me give you a glimpse into my perspective,” then she let us have it.
Basil’s response includes: “A lot of us have not made all the ‘right moves’ for whatever reasons. We, most humbly, ask for empathy and understanding. Not smugness and superiority.”
“Loved her comments,” Dan M. agreed, “Feel like I just encountered a younger soul mate. How can two strangers have so much in common? Best to all.”
Theres-Marie struck a chord. If you’d like to comment yourself, please do so here: addison@greyswanfraternity.com
How did we get here? Find out in these riveting reads: Demise of the Dollar, Financial Reckoning Day, and Empire of Debt — all three books are now available in their third post-pandemic editions. You might enjoy one or all three.