Heads the Fed wins tails the Fed wins? That's what this market seems to be signaling as we go into what many pundits will be calling the most difficult Fed meeting to game in ages.
Right now, as we see it, the Fed has to be worried about how much inflation the next round of tariffs is going to cause versus how much the tariffs will hurt our growth.
It's not easy. I expect a raft of articles like we have in the Wall Street Journal about how there are manufacturers who simply can't make their goods elsewhere other than China.
What's worrisome about these kinds of stories is that the president doesn't really care about these businesses because, as I have tried to explain endlessly, because they are collateral damage in the trade war against a nemesis that the president says must be beaten.
Trump hates to lose. He hates to lose elections. He hates to lose in the ratings when he was on the Apprentice. He hates to lose in business deals. He can be petulant and nasty, but he is relentless and I don't think that President Xi understands that Trump is quite confident that he can handle the problems these smaller companies that need Chinese goods have. All he has to say is that they were foolish to rely on the Chinese so they better get on the case and move.
On Friday I had Gary Friedman on Mad Money, the CEO of RH (RH) , and if you recall, earlier this year he was talking about how he wasn't able to move from China. They did it too well. It was good for the customer.
Oh well. He moved. He had to.
Maybe the Fed sees the chaos that the tariffs could cause and says that it has to monitor the economic falloff.
How should the Fed react to that? I think the heads/tails win comes, not in a cut, which would get people scared that Jay Powell knows something that we don't, but in a statement that says the Fed is monitoring the fallout from the tariffs closely and it will cut next month if things get worse.
I actually regard that as the most likely and the most positive outcome.
I do worry that, eventually, we will see inflation come back from the tariffs. They are inherently inflationary.
Amazingly though they were definitively NOT inflationary when it comes to steel and there has been no pick-up at retail to date.
Now here's something to think about: when we see the companies profiled in the Journal that are in trouble from the tariffs, does it dawn on us that these are products that, for the most part, are either destined for landfills or are made by others more cheaply in other countries?
It's going to be a long time before we see the inflation but the slowdown is already upon us.
That's why, again, the Fed's in good shape. It has an easy call.
It's only the pundits who think it will be hard.
