Tracking Wealth Through the AI Lens
Tracking Wealth Through the AI Lens
Federal Reserve Chair Jerome Powell just did something central bankers rarely do: he admitted a past mistake while simultaneously charting a new course based on incomplete information. In a speech before the National Association of Business Economics, Powell signaled a significant policy pivot, suggesting the Fed is preparing for at least two more interest rate cuts this year. The stated reason is a growing risk from a slowdown in hiring.
But the real story isn't the pivot itself. It’s the context. The Fed is making this dovish turn while flying almost completely blind. A federal government shutdown has choked off the official economic data stream, leaving the institution that prides itself on being "data-dependent" to navigate by feel. This isn't a confident, proactive move. It looks more like an attempt to buy insurance against a recession that, by their own admission, they can't accurately measure. The market may cheer the prospect of lower rates, but the underlying mechanics of this decision should give any serious analyst pause.
Let's break down the logic Powell presented. The core argument is that the Fed's dual mandate—stable prices and maximum employment—is now tilting heavily toward the latter. "Rising downside risks to employment have shifted our assessment of the balance of risks," he stated. This is central bank code for "we are now more worried about people losing their jobs than we are about inflation," a shift that led to reports that Fed Chair Powell says hiring slowdown poses economic risks, hinting at more interest rate cuts.
To support this, he effectively dismissed the current inflation numbers. While the Fed’s preferred measure has hit 2.9%, Powell attributes this almost entirely to tariffs, claiming there are no "broader inflationary pressures" that would sustain high prices. Is this a nuanced reading of the data, or a convenient narrative to justify a policy shift he already wants to make? Without the full suite of government statistics, it's difficult to verify. We're being asked to take the Fed's word for it.
The pivot isn't just about the federal funds rate. Powell also hinted that the central bank may soon stop shrinking its colossal balance sheet. For months, the Fed has been letting about $40 billion in Treasuries and mortgage-backed securities mature each month without reinvesting the proceeds—a process known as quantitative tightening. To be more precise, it's a passive runoff, not an active selling program. Halting this process would be another powerful signal that the era of tightening is definitively over. This is the other half of the dovish pivot, where the Fed’s Powell suggests tightening program could end soon, opens door to rate cuts. It’s a one-two punch designed to lower borrowing costs and encourage businesses to start hiring again. The question is whether you can solve a hiring problem when you can't even see its true scale.
Here is the part of this story that I find genuinely concerning. Powell acknowledged the data blackout from the shutdown, yet claimed the "outlook for employment and inflation does not appear to have changed much since our September meeting." This is an extraordinary statement. How can the outlook remain unchanged when the very instruments used to measure it have been switched off? It implies the Fed is relying on private data sources, proxies, and anecdotal evidence to guide a multi-trillion-dollar economy.
This raises a serious methodological question. What are these alternative data sets? Are they as reliable and comprehensive as the official government reports from the Bureau of Labor Statistics? Are they subject to the same revisions and statistical rigor? The details on this remain scarce, but the implications are immense. Making policy based on a patchwork of proprietary data is like a pilot trying to land a 747 using a smartphone GPS instead of the instrument landing system. It might work, but the margin for error is terrifyingly thin.
This isn't just an academic concern. The Fed's credibility rests on its ability to make dispassionate, data-driven decisions. When it signals a major policy change during a data vacuum, it opens itself up to the criticism that it's reacting to political pressure or stock market volatility rather than fundamental economic conditions. It feels less like a calculated adjustment and more like a preemptive guess, driven by the fear of being caught behind the curve.
Perhaps the most revealing moment of the entire speech was Powell's look in the rearview mirror. He spent a significant portion of his time defending the Fed's massive asset purchases during the pandemic (primarily in 2020 and 2021), a policy that has drawn a torrent of criticism for allegedly inflating asset bubbles and worsening inequality. Treasury Secretary Scott Bessent has been a particularly sharp critic, arguing the bond-buying bonanza did little for the real economy while massively boosting the stock portfolios of the wealthy.
Then came the concession. "With the clarity of hindsight," Powell admitted, "we could have—and perhaps should have—stopped asset purchases sooner."
This is a stunning admission. The head of the world's most powerful central bank is publicly stating that their biggest policy tool of the last crisis was likely miscalibrated. He defended the action as "insurance against downside risk," but acknowledging the error in timing completely reframes the current pivot. If the Fed kept its foot on the gas for too long fighting the last crisis, what confidence should we have that they won't make the opposite error now, hitting the brakes (or in this case, the accelerator) too soon or too hard based on fuzzy data?
This admission isn't a sign of humble transparency. It's a tell. It reveals an institution haunted by its last policy mistake—being too slow to react to spiking inflation—and is now desperate to avoid being too slow to react to a potential slowdown. The risk is that in trying to correct for the last war, they are perfectly positioning themselves to fight it, rather than the one that lies ahead.
Let's be perfectly clear. The Fed's signaled pivot to rate cuts is not a response to clear and present economic data. It is a forecast based on incomplete information, colored by the institutional memory of a recent policy error. Powell's admission that they "should have" acted sooner on quantitative easing hangs over this new decision like a shadow. They are so determined not to be late to the party this time that they are showing up before the invitations have even been sent out. This isn't data dependency; it's anxiety dependency. The market may interpret this as a safety net, but it looks more like a tightrope walk without one.