The Economic Data Is Wrong And The Fed Should Have Cut Rates

To investors,

The Federal Reserve decided not to cut interest rates yesterday. I believe this is a mistake on their part and is another data point proving the Fed is continuously behind the curve when it comes to monetary policy in the modern age.

If you remember, the central bank didn’t raise interest rates until inflation was already out of control during the pandemic. We eventually saw inflation officially hit 9% according to the government data. Inflation was not transitory as they predicted and the American consumer suffered dearly.

A big reason for the Fed’s persistent lag is they have a data problem. Not only is the data backwards looking and lacks real-time accuracy, but the economic data is no longer trustworthy. The Bureau of Labor Statistics was forced earlier this year to revise down the number of jobs created in the last year by nearly 600,000 jobs.

It is insane how inaccurate the jobs number has become.

But that is not the only issue with economic data. I have been convinced that you can not trust most of the reported data. Do you believe the official inflation metrics? I don’t. A good question to ask yourself is whether you think more than 50% of the data is accurate or inaccurate? I am in the camp of majority of the data being inaccurate when it is reported.

You may not care what I think, so what if I told you that new Treasury Secretary Scott Bessent agrees with me. Here is Scott explaining the problem with current economic data on the All-In podcast:

I don’t think it gets much clearer than the Treasury Secretary being asked point blank whether he trusts the data and he says “no.” So this is not some big conspiracy theory, but rather a rational understanding of how the data is collected, analyzed, and reported.

The problem with inaccurate economic data is that it makes the job harder for policymakers and investors alike. How do you decide what to do if you can’t trust the data? And how do investors allocate capital in the market if they can’t trust the data?

This has been a major problem for awhile. It is good to see the current administration acknowledging the problem. That is the first step to fixing it.

This brings us back the Federal Reserve’s decision yesterday to hold rates at the current level. That would be prudent if you were looking at the last CPI report of 2.8% year-over-year inflation growth. The issue is you can’t trust that number and real-time alternative inflation measurements like Truflation are telling you the government data is off substantially.

Truflation is reporting CPI at 1.7% right now, which is below the Fed’s target rate of 2%.

If Truflation is right, which I tend to think is the case, then the Federal Reserve should be cutting interest rates right now because inflation is not a concern. We need to refinance trillions of dollars in federal debt this year, homes for the average American family have become unaffordable, and businesses desperately want to access cheaper capital — all of this is positively affected by lower interest rates.

Rates are too high. The Fed should cut. But they are hiding behind the government inflation data as reason to stay at current interest rate levels. When inflation data shows up lower in the next few months, we will all once again have proof that the Fed is behind the curve.

A story as old as time.

Hope you all have a great day. I’ll talk to everyone tomorrow.

- Anthony Pompliano

Founder & CEO, Professional Capital Management

Bitcoin Senator Reveals US Bitcoin Plan

Cynthia Lummis is a U.S. Senator from Wyoming, and is the first-ever chair of the new Senate panel devoted to digital assets.

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