James E. Thorne

Ignore the noise. Iran War gets resolved, yields fall, risk assets appreciate.

Keep it simple If you believe the demand for compute and memory is real. You’re buying here with both hands.

Sixty Years Above 2%, and Now the Fed Panics? Services always run hot. Goods are doing their job. Oil is the shock. Wall Street and the Fed are freaking out over services inflation, a number that has run above 2% for most of modern history. Since 1960, PCE services prices have topped 2% in 86% of months. Even in the 2010s, the decade we now remember as "too low" inflation, services ran above 2% three-quarters of the time. Today they sit at 3.5%, a flat 3.3 to 3.5% band for a year and well below the 6% peak of 2023. The 2% target was never met because services behaved. It was met because goods deflated. From 1995 to 2019, core goods CPI ran at or below 2% in 96% of months and below zero 41% of the time. In the 2010s, the median was negative. Look at the latest CPI. Core goods are running at just 0.7% year over year and rose only 0.2% in October. They've drifted down from 1.4% over the past year. Used cars are down 3.3% and new vehicles are up 0.7%. Tariff-sensitive items like furniture and appliances ticked up for the month, but furnishings are just 0.2% over the year. This is the old pattern returning: goods anchor, services carry. The 4.6% jump in all-goods inflation is the oil shock. Energy goods are up 35%, and gasoline is up 37%. That's a negative supply shock, and the Fed's overnight rate can't drill a well, reopen a shipping lane or end a war. Hiking into this mistakes supply for demand. Higher rates choke housing supply, which keeps shelter sticky, while Main Street and the cyclical economy outside AI pay the price. The Fed is a sledgehammer, not a fine-tuning machine. Look past the oil shock, respect a century of services history, and let productivity do the work.

Memory Yes it’s a buy. $MU

NDX 100 has reclaimed its 200 DMA which is upward sloping. Intermediate bull trend is intact. Game on. Ignore the doomers.

Wheat down over 20% And the Fed says its data dependent. Sure.

Lumber down 25% And the Fed is going to continue to hike. And Wall St applauds.

Rinse and repeat Yes 8000 by year end. Did you ignore the noise and buy the dip?

The Fed’s Next Mistake: Different Chair, Same Blind Spot The Warsh Federal Reserve risks repeating the central error of the Powell Federal Reserve: allowing its policy framework to override forward-looking evidence. Powell’s mistake was to maintain quantitative easing for too long despite mounting indications of inflation risk. Warsh risks making the opposite mistake, maintaining an excessively restrictive stance even as leading indicators point toward the need for easing. In this scenario, March would again become the pivotal month. But a policy reversal then would not demonstrate foresight; it would reveal that the Fed had once again waited too long to recognize a change in economic conditions. The direction of the error would differ, but the underlying institutional failure would remain the same: responding to yesterday’s economy rather than anticipating tomorrow’s. Warsh’s technocratic credentials offer little reassurance if they produce greater attachment to a framework than responsiveness to the evidence. Appointing him could therefore prove a serious misjudgment by Trump and Bessent. The Fed does not need a more forceful exponent of policy orthodoxy. It needs a chair capable of recognizing when that orthodoxy has become the problem.

The Fed Is Not a Fine-Tuning Machine Wall Street’s analysis is as flawed as the Fed’s. Both treat monetary policy as a precision instrument: hike into early 2027, then cut in the back half of the year, supposedly managing inflation without overtightening the economy. Warsh’s appointment is a massive disappointment! But monetary policy works with long, variable lags—potentially stretching to 24 months. The full effects of the next two hikes could still be working through the economy well after the forecast’s first cut. What justifies such confidence in the timing of both moves? The inflation figures hardly establish a fresh acceleration. Monthly headline CPI slowed from 0.6% to 0.4%, while core held steady at 0.3%. Yes the trend was ignored, not a surprise. The quest to the magical 2% level must be achieved at all cost. Main St will feel the pain. Inflation can exceed a forecast without accelerating. An upside surprise means the forecast was too low; it does not, by itself, establish that policy needs to become more restrictive. Such is life in the Hall of Mirrors. I suggest November CPI could come in as low as 0.05% month over month and still be brushed aside. Hanging over the Fed and its Wall Street acolytes is the sword of Damocles: fear of a 1970s-style inflation resurgence, driven by second- and third-round effects. In that mindset, softer inflation is temporary, stronger growth is dangerous, and almost any evidence can become an argument for more restraint. The deeper contradiction is that this analysis expects inflation to fall meaningfully as tariff effects, the energy shock and AI-related price pressures diminish. If those forces are expected to fade, why add restraint whose full effects may arrive just as those pressures unwind? Instead, the argument leans on what policymakers will signal and what becomes the “path of least resistance.” That predicts institutional behaviour; it does not justify the policy. This is the hall of mirrors in plain sight: Wall Street anticipates the Fed, the Fed takes its cues from Wall Street, and each treats the other’s expectations as validation. To my mind, Warsh has been a profound disappointment, not a break from that mindset, but another reflection of it. A hike followed by a cut is inherently contradictory. Confidently prescribing both within such a short window assumes a degree of control that long, variable lags make impossible to guarantee. Monetary policy is a sledgehammer. The risk is straightforward: the Fed tightens against yesterday’s price pressures, then starts cutting before the full economic damage becomes visible. Wall Street is not challenging that flawed approach. It is endorsing it. Hiking into a negative energy shock that’s disappearing. Insanity.

Fed wants to raise 50 bps IMHO Nov CPI SA will come in under 0.05% What does it matter when the Fed ignores theory and Data. Its uber hawkish tone is a mistake.

1 yr Breakevens below 2% Oil and Gasoline falling And Fed and their Wall St cheerleaders want more hikes.

My thesis S&P 500 gets to 8000 by year end. Yes my 10,000 2027 target still holds youtu.be/epT1uGLrhU0

The Fed’s Next Mistake, Dressed Up as Prudence Expect the Fed’s defenders to provide intellectual air cover for a December hike: concede that the overnight rate cannot fix an oil shock, then insist on hiking anyway. The contradiction will go unexplained. Main Street and the cyclical economy outside AI will absorb the damage. Hiking into a supply shock does not produce more energy. It suppresses demand elsewhere and decides who pays. Calling that “prudence” does not make it sound economics. Recall that the Fed cut 50 basis points in September 2024, ahead of a presidential election. Today, it is entertaining a 50-basis-point hike. That is the contrast its defenders need to explain. Then, an aggressive move was a prudent recalibration. Now, an aggressive move in the opposite direction is supposedly the same thing. “Prudence” has become whatever the Fed happens to propose. That is not a coherent reaction function. It is institutional deference masquerading as analysis. Waller’s speech was reckless. Yet, Wall Street’s applause was predictable. Apparently, questioning the Fed’s reasoning is less fashionable than rationalizing its next mistake. To be clear, Wall St analysts are lap dogs for the Fed. As the energy shock dissipates, the justification will migrate to whichever price category still looks uncomfortable. Intracity transportation, perhaps. Find a stubborn component, ignore the broader cycle, and declare the case for tightening established. This is not analysis. It is a conclusion shopping for evidence!! Read the Wall St justifications for hikes it’s comical, find the compotent with historical outside moves and say “see the Fed needs to hike 50bps” To adapt the line commonly attributed to Lavrentiy Beria, Stalin’s secret-police chief: “Show me a component with a one-time historic price spike, and I’ll find you a justification for a rate hike.” The Fed needs to leave the 1970s behind. An economy divided between an AI investment boom and interest-sensitive businesses under pressure cannot be understood through a single, mechanically applied estimate of r*. Different sectors face different financing conditions and respond differently to the same policy rate. That is not an obscure theoretical qualification. It is the economy the Fed is supposed to understand. The cyclical case is for a cut, not another hike. The Fed’s acolytes will call further tightening a defence of credibility. Credibility is not restored by repeating a policy error with greater conviction.

The Fed Is Fighting the Wrong Inflation. Warsh needs to show leadership! Warsh wants to scrap forward guidance and dot plots while leaving Fed officials free to broadcast their policy preferences. That does not end forward guidance. It hands the microphone to hawks and disgruntled colleagues, allowing their pronouncements to shape expectations. Reckless comments from Fed officials need to stop! The result is neither coherent communication nor disciplined policymaking. A central bank should distinguish a fading supply shock from persistent demand pressure, not let its loudest voices dictate the response. October’s CPI rose 0.4 per cent, down from 0.6 per cent, the trend matters. Core was 0.3% unchanged from previous month. Governor Waller is floating a half-point December increase. A tenth above expectations, and out comes the sledgehammer. That’s reckless!! Yet services accounted for nearly 90 per cent of core inflation, with shelter contributing half of core services. Owners’ equivalent rent, an estimate, not a payment homeowners make, dominated shelter rent. Housing scarcity is not a wage-price spiral. Higher rates can aggravate it by raising construction costs and locking homeowners into existing mortgages. The supposed cure risks feeding the disease. Meanwhile, the energy shock is unwinding. West Texas crude has fallen more than 20 per cent from late October; wholesale gasoline is down 27 per cent since September. One-year inflation swaps are below 2 per cent. Six-month annualised core CPI is 2.7 per cent; Dallas trimmed-mean PCE is 2.4 per cent. Third-quarter productivity rose 3.6 per cent annualised, while unit labour costs fell 0.7 per cent. These figures demand judgment, not reflexive tightening. Raising rates into easing energy prices and falling labour costs would risk turning a temporary inflation shock into recession.

Warsh wants to scrap forward guidance and dot plots, yet Fed officials remain free to signal their own policy preferences under the existing communications rules. He is effectively ceding forward guidance to the hawks and disgruntled colleagues. That is no way to run the Fed.

Please forward to the Fed. Inflation swaps. 👇

No comment. Waller want to hike 50 bps Breakevens. 1yr breakeven is below 2%.

This is what you get when Fed Technocrats that have no subject matter expertise to set monetary policy. Barkin implies the demand side of the economy is overheating. This is so wrong. Yes incompetence.