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Swan Dive

The Shadow Fed Rises

Loading ...Addison Wiggin

September 15, 2025 • 6 minute, 34 second read


confidenceFedInflation

The Shadow Fed Rises

“It’s going to be a big one,” President Trump predicted yesterday with his customary reserve. He was forecasting the (ostensibly) independent Federal Reserve’s rate cut announcement on Wednesday.

Traders nodded, sending stock futures higher.

“This rally rests not on fundamentals but on the presumption of cheaper money,” observed Bloomberg analysts this morning.

The central bank is supposed to balance growth with stability. But what happens when the White House — loudly and persistently — insists on setting the terms?

We’ve been asking that question for weeks now.

And, well… we’re going to find out, aren’t we?

⚖️ Fed on Trial

Congress created Fed independence in 1935, cemented it in the Treasury-Fed Accord of 1951, and famously enforced it by Paul Volcker in the 1980s when he cranked interest rates to break inflation.

Globally, though, the modern era of central bank independence didn’t begin until after 1980. The Fed’s unique arrangement, which many assume is untouchable, is actually a historical anomaly.

Today, it’s under siege.

A September Bloomberg survey found economists overwhelmingly support the Fed’s prerogative to set interest rates — but most are “somewhat” or “extremely” worried politics will creep in.

Heh.

Turn Your Images On

A survey of economists reveals most believe a less independent Fed will have the contrary effect to the White House’s stated goal of keeping borrowing costs low. (Source: Bloomberg)

A separate University of Chicago poll warned that political interference would push up U.S. borrowing costs and raise risk premia on government debt.

And yet, trust is draining away.

In 2001, amid the turmoil of the tech wreck meltdown on Wall Street, Gallup found 74% of Americans had confidence Alan Greenspan would “do the right thing.”

In 2025, only 37% say the same of Jerome Powell. For the first time since Trump and Powell shared the stage, more Americans trust Trump than Powell to steer the economy.

That does not bode well for Fed independence.

🕶️ Trump’s Shadow Fed

The fight over Fed Governor Lisa Cook has become the flashpoint. Trump’s lawyers pushed Sunday to oust her before Wednesday’s vote, alleging mortgage fraud tied to an Atlanta property. A judge blocked the move — for now — but Cook has vowed not to resign.

If Trump succeeds, he effectively creates a Shadow Fed. “One more responsive to the president’s political agenda,” the Financial Times lamented, “than the dual mandate of the institution itself.”

You may recall that Treasury Secretary Scott Bessent was blunt on his own X feed last week: “The Federal Reserve is among the foremost drivers of inequality in America. It must stop serving the wealthy at the expense of everyone else.”

The real test is whether retail investors will still smile when politics, not prudence, sets the cost of money.

🌏 Trade, TikTok, and Tariffs

In Madrid, U.S. and Chinese officials met for a second day, hashing out tariffs and TikTok. Reuters quoted one U.S. negotiator: “China fundamentally misunderstands our position on TikTok. The President is prepared to let a ban take effect.”

Beijing complicated matters by announcing Nvidia violated anti-monopoly laws tied to a 2020 deal. No details, just a one-line notice — and futures fell instantly.

Stefan Bartl at AIER warns: “Bureaucrats becoming shareholders of major U.S. companies is a sign of systemic weakness, not reform. Transplanting swamp creatures from Washington into corporate boardrooms entrenches corruption.”

🎬 The Ellison Empire

While Washington fiddles, Hollywood consolidates. Larry Ellison and his son, David, are preparing a mostly cash bid for Warner Bros. Discovery, just weeks after merging Paramount with Skydance.

As the Financial Times observed: “This is a once-in-a-lifetime chance for David Ellison to cement his role as Hollywood’s mogul-in-chief.”

By offering both Warner’s streaming jewels and its cable baggage, the Ellisons may keep Amazon, Apple, and Netflix out of the bidding. One analyst put it bluntly: “When you have Larry Ellison’s checkbook, you don’t wait.”

⚡🚗 EVs Lose Their Spark

Cox Automotive says U.S. EV sales hit a record 146,000 in August, but Tesla’s fell 6.7%. Why? The $7,500 federal tax credit expires at the end of September.

AutoPacific cut its forecast: EVs will now make up just 12% of U.S. sales by 2029, half its earlier estimate.

Without subsidies, adoption looks even slower.


🍳 Cost of Living Fear

PNC Bank’s annual workplace survey found that 67% of U.S. workers now live paycheck to paycheck, which is up from 63% last year.

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Consumer anxiety over the economy is also trending in the wrong direction. Purchasing power decline has historically exerted its own political influence (Source: Bloomberg)

And that’s among the employed. Factor in those without jobs, and the real number is higher.

Prices for everyday goods are continuing to rise:

  • Coffee is up 21.7% year over year.
  • Beef steaks up 16.6%.
  • Eggs up 10.9%.
  • Bacon up 7.2%.

For many households, inflation has already eaten away the margin between security and despair. This survey reveals people aren’t just afraid of losing a job. They’re afraid of losing the standard of living they thought was guaranteed.

📉 Confidence Collapse

Consumer sentiment fell again in September to 55.4, firmly in recession territory. Expectations dropped to 51.8 — one of the lowest readings since the 2008 crisis.

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Consumer sentiment, like most economic indicators, is cyclical. We’re entering a low not reached since the depths of the pandemic lockdowns or the Iran Hostage crisis of the late Carter presidency. (Source: University of Michigan)

70% of Americans now say their income won’t keep pace with prices over the next one to two years, the highest share in at least three decades.

And expectations for inflation-adjusted income are at their lowest since the 1970s.

When Money Breaks, Violence Follows 🔥

We made these observations several years ago when formulating our forecast for rising political violence in a special report we called Shell Game. We referred to the political spin that gets put on the news cycle and the impact of rising economic anxiety.

At the time, we framed it as a forecast — before heightened rhetoric of the campaign season, before the second Trump administration, before someone tried to whack the president-to-be. Twice.

Economic strain isn’t abstract — it shows up in politics, in the streets, even in the headlines of violence we’ve covered these past weeks.

“Inflation undermines civil society,” wrote Porter Stansberry last week, “because it erodes the incentives for hard work, thrift, and tolerance. Controlling government becomes a blood sport, because it controls everything else.”

The connection is direct: when money doesn’t work, people stop believing the system does either. And when they stop believing, they turn to anger, extremism, and violence.

In the wake of Charlie Kirk’s assassination, we shouldn’t kid ourselves that political violence is anything new in American society.

124 years ago, on September 14, 1901, Trump’s favorite President, William McKinley, died, eight days after being shot by an anarchist in Buffalo.

Known as the “tariff president,” McKinley defended big business, the gold standard, and protective duties.

His death ushered in the era of Theodore Roosevelt — and a new vision for America’s economy that ultimately gave way to the progressive era of Wilson and the U.S. entrance into World War I.

A century later, the questions remain: who controls money, who controls trade, and who pays the price?

And what on earth can you, the gentle investor, do about it?

~ Addison

P.S. In Grey Swan Live! with Adam O’Dell this week, we’ll explore policy changes the Trump administration is making to encourage $10 trillion in money market funds parked on the sidelines during the terrifying bull market on Wall Street to get in the game!

Mr. O’Dell suggests this may be the most significant transfer of wealth in our lifetimes… greater than 2009-’10 amid the Global Financial Crisis. We’ll dig into the details on Thursday. Here’s how you can join us.

If you have any questions for us about the market, send them our way now to: Feedback@GreySwanFraternity.com.


The Ghost of Bastiat

October 6, 2025 • Addison Wiggin

By then the receipts on my desk had arranged themselves into a sort of chorus. I heard, faintly, another refrain—one from Kentucky. In the first days of the shutdown, Senator Rand Paul stood alone among Republicans and voted against his party’s stopgap, telling interviewers that the numbers “don’t add up” and that he would not sign on to another year that piles $2 trillion onto the debt.

That, I realized, is what the tariff story shares with the broader budget theater: the habit of calling a tax something else, of shifting burdens into the fog and then celebrating the silhouette as victory. Even the vote tally made the point: he was the only Republican “no,” a lonely arithmetic lesson in a crowded room.

The Ghost of Bastiat
The Dollar’s Long Goodbye

October 6, 2025 • Addison Wiggin

Senator Rand Paul, (R. KY), who was the sole Republican to vote against a continuing resolution, seems to care about the actual finances of the government. “I would never vote for a bill that added $2 trillion in national debt,” Paul said in various interviews over the weekend.

The $2 trillion he’s referring to is the lesser of two proposals made by the national parties… and would accrue during this next fiscal year.

Oy.

We liked what Liz Wolfe at Reason wrote on Friday, so we’ll repeat it here: “One of the dirty little secrets of every shutdown is that everything remains mostly fine. Private markets could easily replace many federal functions.”

It’s a strange kind of confidence — one where Wall Street soars while Washington goes dark.

The Dollar’s Long Goodbye
A Vote For The Yen Carry Trade

October 6, 2025 • Addison Wiggin

The Liberal Democratic Party victory has sent Japanese stocks soaring, as party President Sanae Takaichi – now set to become Japan’s first female Prime Minister – is a proponent of stimulus spending, and a China hawk. The electoral win is a vote to keep the yen carry trade alive… and well.

The “yen carry trade” is a currency trading strategy. By borrowing Japanese yen at low interest rates and investing in higher-yielding assets, investors have profited from the interest rate differential. Yen carry trades have played a huge role in global liquidity for decades.

Frankly, we’re disappointed — not because of the carry trade but because the crowd got this one so wrong!

A Vote For The Yen Carry Trade
Beware: The Permanent Underclass

October 3, 2025 • Addison Wiggin

Back in the Global Financial Crisis (2008), we recall mass layoffs were driving desperation.

Today, unemployment is relatively low, if climbing.

Affordability is much more of an issue. Food, rent, healthcare, and childcare are all rising faster than wages. Households aren’t jobless; they’re stretched. Job “quits” are at crisis-level lows.

In addition to the top 10% of earners, consumer spending is still strong. Not necessarily because of prosperity, but because households are taking extra shifts, hustling gigs, working late into the night, and using credit cards. The trends hold up demand but hollow out savings.

It’s the quiet form of financial repression. In an era of fiscal dominance, savers see easy returns clipped, workers stretch hours just to stay even, and wealth slips upward into assets while daily life grows harder to afford.

Beware: The Permanent Underclass