Peak Powell Or Just Good Policy

Markets don’t move on speeches alone; they move on credibility. We take you inside a fast-moving 2025 where Jerome Powell faced political heat, weighed softening labor data, and used Jackson Hole to set a disciplined path toward rate cuts without surrendering the Fed’s independence. From there, we chart the trade-offs every investor cares about: do cuts cushion a slowdown or risk re-igniting inflation that’s still biting in housing, food, and utilities?

We dig into the data fog that muddied decision-making. A government shutdown delayed key releases and a high-profile flap at the Bureau of Labor Statistics raised tough questions about timeliness, revisions, and the specter of political interference. Our take: GDP will be revised for months, so investors should triangulate with higher-frequency signals—claims, PMIs, card spend, credit spreads—and treat shutdown-tainted prints with caution. We also explore the governance storyline around Governor Cook, how media scrutiny and process ultimately held, and why the Fed’s unique legal standing limits presidential power to remove board members.

Expect a clear, investor-focused read on what comes next. We frame a base case of two to three conditional cuts, explain why guidance matters more than the dot plot count, and outline how the Fed could pause or even take back a cut if inflation expectations drift. We close by mapping the risks that could tip 2026 toward recession—job losses, affordability pressures, and slower demand—and translate that into portfolio moves: prioritize quality balance sheets, keep selective duration, and maintain liquidity to navigate spread shocks when politics and data collide.

If you value sharp, independent analysis that cuts through the noise, follow the show, share it with a friend, and leave a quick review—what’s your call on the next move: more cuts or a pause?

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Disclaimer - These podcasts are not intended as investment advice. Individuals please consult your own investment, tax and legal advisors. They provide these insights for educational purposes only.

Chapters

• 0:00 Setting The Stage For 2025
• 1:55 Fed Independence Under Political Pressure
• 3:29 Jackson Hole As The Turning Point
• 5:44 Do Cuts Risk More Inflation
• 8:32 Data Quality, BLS, And Shutdown Distortions
• 11:39 Governance, Cook’s Scrutiny, And Checks
• 14:25 Can Presidents Sway The Fed
• 16:44 How Many Cuts And When
• 18:54 Recession Watch And 2026 Outlook

Transcript

Clem Miller: 0:50

Hello, everybody, and welcome to Skeptic's Guide to Investing. I'm Clem Miller. I'm here with Steve Davenport. And we're going to do another one of our short end-of-year kind of episodes on various topics. And we've done some on on Tr p and Marjorie Taylor Green and whether we're at peak Tr p. Uh we did one on international merry-go-round. Uh we did another one on on AI, whether we're you know essentially peak AI, you could say, another one on tariffs, and right now we're gonna be doing doing the Fed. Uh and and so let me ask you, Steve, on the Fed. Um when you look back at 2025, you know, what's your observation? Has the Fed really made a difference? These Fed rate cuts. Uh, what do you think?

Steve Davenport: 1:49

Well, I think that when we started the year, we had a lot of rhetoric about needing lower rates. And I think that the way the Fed has handled themselves in this issue with Tr p, I think has been very good because I think they have established the independence, and I think they've tried in most things to shake off noise and not let it affect their underlying business. And I like that because I think that's the way that you should always act. You should always be acting for the you know your under underlying goals. Um overall, this year, we started with a lot of negativity, a lot of threats to take out Powell and to take out Cook. And you look at those things and you ask why, it's because you want to set up a Tr p wanted to set up a Fed that he controlled and influenced greater than he could, right now as Fed, and he wanted that to get done sooner, not later. And so what he did is he forgot that the process could royal markets, and he forgot that. And so having Bissett at his side as Treasury, telling him that you can and can't do these things, , I think ultimately was his biggest asset. But when I look at the Fed and I look at how things went, I would say that the crucible moment happened with the Fed when they were out at Jackson Hole. And Jackson Hole really, his commitment to a cut and his realization that unemployment was weakening, and therefore one of his mandates was being challenged, and he felt the inflation mandate had been taken under control enough. I think he created a script where he could still be the leader, even under attack. And by showing that to Tr p, I think he realized that he's doing what I want, which is cutting rates. Therefore, you know, he's not doing everything I want. He's not doing it fast enough, he's not doing it enough. Um, you know, Tr p is ignoring the affordability crisis. When he says he wants more rate cuts, rate cuts are going to be inflationary. Inflation is gonna make it more expensive for Americans to live in housing and eating and all the utilities. I think that when we look at his year, Powell had what I would consider to be some of his strongest days. Um, I don't want to say Peak Powell, because that would be stealing from all the other podcasts we're doing, but I think it was Peak Powell. And when I look at things, I think about the transition from after Jackson Hall and before Jackson Hall. And I think about Cook. Cook stood up and said, I belong here, I didn't do anything wrong. And then when they found that Pacent had done the same thing on his applications, people suddenly said, well, maybe this is a problem with the the way the application is, and not a problem with someone doing something illegal. So I kind of think that the overall integrity of the Fed, which I don't agree with on a lot of signs, I think has been enhanced by their putting their backs up, focusing on their jobs, and ultimately doing what they think is right in a way that some would say was just caving to Tr p. I think they they did things in a sense of caution. I don't think they did things with a sense of fear of Tr p, because certainly the threats he made beforehand were probably stronger than the threats he's made since. So I think they've mitigated some of his threats by making cuts. But I think the cuts probably had more meaning and more seriousness because they were done after a thoughtful process versus after a social media post. I'm I'm I'm big on, you know, we we all as a government need to pull behind our president. But I think that when we look at this, the way to get things done with the Fed wasn't through Truth Social. I'm not sure that's how you it might communicate what you're doing with your son or what you've done with your family or what golf course you're playing, but I don't think it's how you communicate with the Fed. I think that he's realized that the system and the system is a bitch. You know, the courts, the Congress, the the process is brutal to get something done in 2025 America. I'll say that. I don't believe that the government is working as well as it can. I think we knew that before Tr p came to office. Has what he's done cleaned it up, made it better? I don't think it has. I think he's created a more of an air of fear, he's created more of an air of uncertainty, and I don't think he's been clear on how he wants things to actually work. I think he goes from issue to issue, he tries to derive as much fame and glory from that issue, and then he moves on to the next. And unfortunately, I think his health is an issue. So I think that when I look at what's happening with Powell, I do expect Powell to ultimately, you know, step down. But I think he might step down and stay on the board as a member to try to, you know, use any information he's had during these years to help the next Fed president or to help the board. So I think that Cook will stay. They wanted to get Cook out by late January because if they did that, they would have another seat to present when they get their next Fed chairman. I think that the things that Tr p wanted from the Fed, he's not gonna be able to get. Ultimately, I think the Fed will cut two or three times this year, which I think will be inflationary and will ultimately be a case of Tr p be careful of what you want, or surely you'll get it. He wants rate cuts, he's gonna get rate cuts, and I think they're gonna be inflationary, and I think we're gonna have a less stable economy, you know, a year from this November, you know, this next November, and that's gonna make just a disruption of the current balance in Congress to change. Whether it changes completely, I'm not sure we're there yet. But I do worry about the Fed and they're moving forward with these cuts. I would love to see them message more that they are gonna do it cautiously based on inflation, so that these cuts don't lead to a bigger problem that we ultimately have to solve with more and stronger measures. What do you think the Fed wants and should we?

Clem Miller: 9:00

So I think the Fed has done a really good job over the last few yeah, yeah. I think they've done a really good job in over the last few months in trying to preserve their independence.

Steve Davenport: 9:14

Now I'm independence-wise, overall agreeing for the Fed, I would give a a B minus. In terms of independence, I give them an A minus.

Clem Miller: 9:25

Right. So you mentioned concerns about the rate cuts adding to inflation, and you're right. Okay, that's that's certainly a a potential issue, but there's an alternative scenario, , Steve, that maybe maybe you're not considering, right? And that is we might be going into a recession. We might already be in a recession, in which case rate cuts are are actually a good thing, , not a bad thing. And so it could well be that you know, this push for rate cuts, which is really a you know, a political push from Tr p, it could be that they end up being the right thing to do at the right time for the economy.

Steve Davenport: 10:14

I think we're gonna have a hard time in this fourth quarter. I don't think even if we came out with a GDP of minus one in the fourth, any person who's gonna try to declare a recession is gonna say it's based on the government shutdown, therefore the data is not relevant. So I'm not sure we can say we're in, even if we could say, Clem, we're in a recession right now in the fourth quarter. Would you say that that's a legitimate reading?

Clem Miller: 10:42

Or you would just say it's gonna that would bring me to my second point. But let me just tell you about GDP fourth quarter. You know, there are there are three GDP readings, , and you know, we're not gonna know until well into 2026 what actually happened in the fourth quarter of 2025. So to me, that goes to the relevance of you know, are GDP n bers actually that relevant when you only find out what happened months later?

Steve Davenport: 11:11

So with with finalized data months later, but I think you could agree with me that most people, economists who look at the fourth quarter, and if it came out negative, they would say, Well, yeah, look at all the people who didn't even get paid for six weeks, eight weeks. You know, I mean, it's it's going to be a a data point that we're gonna disregard.

Clem Miller: 11:33

So some economists do make decisions based on looking back in time, right? Uh and and I don't think that's a smart thing to do, is to make decisions on the future based on really old information. I just don't think it's a good good idea.

Steve Davenport: 11:52

I mean, you talk about the promise, which we could run a we could run a five a five episode s mary. That's that's let's focus on what we're talking about. Well, but it's talking about the Fed in 2025.

Clem Miller: 12:06

Here's but here's a problem. Here's a problem. It's better to look at high frequency information to make decisions, that is monthly, weekly, even decisions or data points to to look at what's going on in the economy. And herein lies the problem. You had two issues. One is you had a bad report coming out of the Bureau of Labor Statistics that led to Tr p engaging a in a political intervention into the nation's premier statistical agency. So that's n ber one. And n ber two, you had a government shutdown, , which led to delays in and the issuance of important government statistics. And and in reality, you know, when you look at those two things, you know, I kind of wonder was the government shutdown a cover for trying to manipulate what's coming out of the BLS, the statistical agency? So I'm not sure that you know some of this data that the Fed the BLS.

Steve Davenport: 13:15

Ultimately they control the leader of the BLS and they can do whatever they want. Yeah. I don't I don't think they need to do anything underhanded to change the BLS. Uh, I guess I'd like us to get back to 25. Does does what happened to Cook give you confidence that the system ultimately works? The media pursued her insons, they pursued Bassant, they realized there was a conflict there, and they needed to make a general statement, which was there were mistakes made, but they weren't illegal. There wasn't some, there wasn't anything malicious done, you know, really. So therefore, I I think the system of checks and balances worked with Cook.

unknown: 14:00

Right.

Clem Miller: 14:01

And and and you had in all these discussions about allowing Tr p to fire agency heads, , you have this expression, especially from Justice Kavanaugh, who has said that the Fed's different than other agencies. And he goes through a list of why he calls it different. But he said, you know, I'm concerned about a lot allowing Tr p to be able to fire members of the Federal Reserve Board. And so I just don't think I don't think we're going to see that happen. And I think that that the president will exercise influence on the Fed through his appointments, you know, in the normal order of business.

Steve Davenport: 14:47

I don't think he's going to every president.

Clem Miller: 14:50

Yeah.

Steve Davenport: 14:51

Every president has a meeting with the chairman of the Fed and says, here's what I'd like, and you they say, well, here's what I see in the data, and you know, they go back and forth. I don't, I I guess I would say I'm a little bit heartened by the way that the process went on. I was disappointed in Cook for her mortgage problems. I was disappointed in Bissent, because here are people who have the means to make sure that things are done right, and it's still not done right, right? So how do we, you know, how do we look at that? We can look at it as a negative that these people are conducting and doing things that we don't agree with. Or we can say, you know, the the checks and balances of the media coverage of this was tough on Cook. It was tough on dissent. It was in general a clearing out and an informative discussion that ultimately led to Cook's keeping her seat. And ultimately, you know, as the first African member of, you know, African-American member of the Fed committee, I think she's held up well, and I think the Fed has held up well. Would I have thought they would? I was expecting him to fire Powell and go to court and argue, and then there would be questions about who's going to be the temporary head. And I think that the process worked. And I think the Fed will, in my mind, take a huge step forward if they don't cut rates just because Tr p tells them to cut. I almost think they have an objective so far, which is if you're going to tell us what to do, we're going to get harder and harder in our positions that we're independent. And I think they've proven their independence. And I think it's now a question of proving what's right for the economy in 26.

Clem Miller: 16:43

Yeah.

Steve Davenport: 16:43

I would love to see that be the discussion going forward, but who knows? I mean, I think that Powell's reactions and Powell's discipline and Powell's not commenting on everything Tr p said was genius because the way you frustrate somebody is to not give them more material to disagree with. Therefore, I think it was a good, you know, it was a good thing. And I think ultimately it led us to a good result. I think getting the two cuts we did, as you said, with uncertainty around the shutdown, there's been uncertainty addressed. I think we'll be addressed again today by another cut, but I wouldn't be surprised if he said, this is a cut and we'll evaluate in the future when the time is right. And there's no guarantee of any of these future cuts. In fact, I think they might take back one of the cuts next year and their forecast cuts and make it two cuts for 25 or 26. And I think that would be appropriate. I I hope that happens. But again, I'm not sure what will happen today. But I think it's there's a good chance that we, you know, we see a correction if it goes from three cuts to two cuts in the forecast. Because I think that a lot of people are fearful that all of the layoffs we had and all of the problems we had with you know government layoffs are gonna eventually impact the economy. And they're gonna eventually, I think we're gonna have a recession. I think it's gonna be early in 26, but I don't think it's gonna be caused by the Fed. I think it's gonna be caused by the normal things, which is job losses and slowdown regarding higher costs and affordability. So I think this is a good way to recap 25, Clem. Um, I think this doing these short clips was a great idea. And , I don't know, I'd like to see you. Do you have any final comments? Nope, I think we've covered a lot. All right, everybody, thanks. Uh thanks for listening to us. Thanks for downloading us. Thanks for sharing with your friends. Please keep sharing and keep telling us what you like to hear, what you want to do. Um, because we're here to help you improve your investing IQ at Skeptic's Guide to Investing. Thanks, and have a good holiday season. As you be safe when you're going around this holiday season, okay.