What Just Spooked the White House?

The government shutdown is officially over — and White House Press Secretary Karoline Leavitt is already scrambling to set expectations ahead of the Fed’s next rate cut decision.

Earlier this week, we looked at the tough position the data-starved Federal Reserve is in ahead of its next Federal Open Market Committee (FOMC) meaning.

In that video, I explained why it might be possible (even likely) that Federal Reserve Chairman Jerome Powell might cut interest rates in December. Now, after Leavitt tipped the White House’s hand in a recent presser, I’m not so sure.

Click the video below to see why the Federal Reserve might decide to hold steady on interest rates, potentially shaking up a toppy stock market headed into the new year.

Video transcript:

Welcome to Moneyball Economics, I’m Andrew Zatlin.

With the federal government back to work, we can expect economic data to start flowing as early as next week. I think the markets though, they’re going to be choppy for a while. The data’s going to be coming out in bits and pieces, and every time a data point comes out, the market’s going to respond. There’s no universal set of data right now, no story that they can hold onto.

And so we’re going to see some jumpiness, and that’s not the only jumpiness we’re going to be seeing right now. It looks like the White House is running scared with respect to this data. So I thought today we would talk about number one, what has the White House so scared and what do I think the data’s going to look like as it comes out? We’re going to break this up into two parts.

Part one, what’s going on that has the White House, so … [they’re] jumpy. Part two, what do I expect the data to start showing and the implications?

This week, Karoline Leavitt, the press secretary, had the following to say, and it is a definite burner that got a lot of my clients upset and excited. She said “the Democrats may have permanently damaged the federal statistical system with October CPI and Jobs reports likely never being released. All that economic data released will be permanently impaired, leaving our policymakers at the Federal Reserve flying blind at a critical period.”

So when she said this, my clients went bonkers.

A lot of institutional investors heard data never being released and they were appalled. Now the reality is what she’s really saying is that data is just so bad for October that we can’t really expect it to inform a federal rate decision, and that is the chief concern. And so therefore, we’re finger pointing at the Dems as the cause of whatever downstream problems there may be.

This is a lot of early blame placing and let’s talk about why they are so concerned in theory.

What is the quality of data that we can expect when we start collecting it this far out?

So if we talk about October data collection, if the data collection surveys start going out next week, it’s almost seven weeks after the fact, it’s very late to go to a company and say, Hey, remember what was going on seven weeks ago? Tell us about it.

November data is two and a half weeks late. It’s not ideal, but it will be a lot more accurate than the October data. In theory, that should be okay while we prefer to get monthly data because it shows sort of where the trend is going.

Are we flat? Is it ticking down? Is it inflecting up?

Monthly data is key to understand what’s going on, what the trend is.

However, the Fed could take November data and they could compare it to September data for payrolls, for example, and say, Hey, over two months we added this many jobs. Is that good or bad? But again, the problem is you do want that inflection.

You do want to know, Hey, is the job market stabilizing and even improving that definitely makes a difference as to whether or not you should cut rates. What’s going on with inflation? Well, again, you can compare November to September and you get a sense, but you kind of want to know is it heating up or is it cooling off?

In any case, this is kind of a moot point. It assumes that we could get the data between now and December 9th.

I mean we’re sitting here. Next week will be the 17th, so there’s three weeks-ish to collect data and analyze it, and that’s the problem. There’s no way if they send out surveys starting next week, it’s going to take a couple of weeks just to get their responses.

So in essence, what has the White House so jumpy is that no matter what happens between now and when the Fed meets, there is no real data that they can act on. There is no inflation data, there is no payroll data, not for one month, but for two months. And that is why they’re very concerned.

See, the Fed might say, you know what? We are flying blind. Why would we make a decision in this environment? And the Fed may say, let’s wait until January. We’ll get another set of data that is timely and reliable. Well, the problem is the next meeting’s in late January, so it’s not just, Hey, we’ll wait a few weeks.

It means going from December 9th all the way out to January 28th, that’s almost two full months of no rate cut when the market’s expecting one in just a couple of weeks. That is why the White House is so upset because they want to rate cut now. They don’t want to wait another two months and as a result of this data incompleteness, well, they’re not going to possibly get it.

I’m now tilting away from the decision that the Fed may decide anyway to the Fed, may just wait, and if the Fed waits, all hell will break out in the markets. And that is why the very first thing Karoline had to say was, the Democrats are to blame.

That’s right. It sounds like maybe the Fed is sending some preliminary signals to the White House that for all intents and purposes, we just don’t know and we’re not going to make a decision when we just don’t know.

With that in mind, let’s start talking about when the data starts to flow, what’s it going to tell us about where we’ve been and more critically — where are we going at the end of all this?

Stay tuned for more on that in your next episode of Moneyball Economics.

We’re in it to win it.

Zatlin out.