Sunday night (May 4th) my son and I had the pleasure of watching the very talented Greenville Symphony play the sweeping, emotionally charged soundtrack of “The Empire Strikes Back” while we viewed the movie on the big screen. I was a young lad when the movie came out in 1980, so watching it and hearing the music up close and personal always strikes me with the call to adventure so many kids crave. And for a short while, at least, I get to imagine living in a different galaxy, although one might say a bit of a dark one, under the oppression of an Evil Empire whose decisions either empowered those on board with its dominance or destroyed those who would oppose it.
What a different galaxy to live in. Right? Or is it? My mind drifts to work all too often on the weekends and Friday night following the concert was no different. I found myself contemplating how different our financial world really was. Emperor Palpatine made up the policies and Lord Vader inflicted his will. So, who is our Empire? Is there an official, unelected by the public with supreme authority over the finances of the country? Someone who really represents the interests of the few over the many (while claiming the opposite)? One who makes unilateral decisions that can’t be opposed? We don’t have anyone like that, do we? No, I’m not referring to Trump nor Biden, nor even Congress.
There was a group today that was given a voice, and since 1913 has had the only real voice that matters in dictating monetary policy to the people of our country. There is no other way than the way they dictate, and unlike the Empire, which conveniently placed the headquarters of their operation in one place, there is no Death Star for any potential rebels to destroy.
That group, our Evil Empire, is the Federal Reserve. They are appointed by the President and Congress to 14-year terms. 14 years … A lot of people I love will be gone in that time frame. That’s a long, long time for any group to dictate terms. It’s not quite permanent, throne room status, but it’s close.
As the country hangs in the balance, an extremely negative debt balance that is, they are refusing to lower interest rates. The rest of the world, at least the rest of the world that matters in world finance, has already cut their rates. Only 7 out of 32 countries or zones have actually hiked rates1, and most of those are countries with rampant inflation, such as Brazil, Russia and Turkey. The other 25 have cut and will likely continue to do so. Their economic activity mirrors ours in many ways. It’s slowing. They get it.
The interest on our national debt now ($1.11 Trillion) ranks higher as a budget line item than does what our country spends on National Defense ($1.10 Trillion).2 The longer interest rates stay high the longer this will be true. We are rapidly approaching a point that it will always be true. While macroeconomic statistics are worsening, the Federal Reserve remains intransigent.
At today’s Federal Reserve press conference Chairman Jerome Powell said, “There’s just so much that we don’t know, I think, and we’re in a good position to wait and see, is the thing. We don’t have to be in a hurry. The economy has been resilient. It’s doing fairly well. Our policy is well positioned. The costs of waiting to see further are fairly low,” Powell said. “I can’t tell you how long it will take, but for now, it does seem like it’s a fairly clear decision for us to wait and see and watch.”
That’s INTERESTING! The U.S. is “in a good position to wait and see” and “we don’t have to be in a hurry”, as we borrow to pay interest from previous borrowing. I thought this group was supposed to be able to see the whole picture.
Powell is, of course, waiting to see the outcomes of the trade negotiations between the US and according to Treasury Secretary Scott Bessent, 18 key trade partners. The Fed also said that “the risks of higher unemployment and higher inflation have risen.” While it’s true that the impact of tariffs can be somewhat inflationary and the stock market remains hypersensitive to that narrative, don’t we have to get past narratives at this point? Is anyone thinking about our kids and grandkids and the world they will inherit? (Having my son beside me watching the movie I grew up loving drove a few things home …)
We are hoping for a speedy resolution to the trade talks as we debate economic concerns and growth prospects for our country as it relates to your portfolios. The reality is that we may be in this a while. The S&P 500 has rallied over the last couple of weeks and erased the post “Liberation Day” fall. There’s a crucial technical indicator that we are watching called the 200-Day Moving Average. So far, the S&P 500 has not broken through that point. It has broken through the 50-Day Moving Average but only slightly and not very convincingly. Until and unless it breaks through the 200-Day Moving Average with some strong days in the next week or two, it’s hard to see the market charging higher with its present valuations, which as we covered last week, are still high. The market seems to be waiting and watching the developments with the trade talks. Likewise, the Fed seems to be waiting and watching. If only they got out of the way, there could be a positive catalyst in all this, both for the short-term and the long-term. Unfortunately, unlike the movies, it appears our Empire is here to stay. We’ll continue to try to divine their dark intentions in our weekly meetings and will let you know what we think is coming, though it is difficult to see. Always in motion is the future …
If you listen to us, we’ll change your financial world …
Sincerely,
The WTA Jedi Council
1 & 2@CharlieBilello
3https://www.cnbc.com/2025/05/07/fed-meeting-live-updates-traders-await-insight-from-powell-on-next-rate-cut-tariff-impact.html
