The Fed Is Fighting the Wrong Inflation. Warsh needs to show leadership! Warsh wants to scrap forward guidance and dot plots while leaving Fed officials free to broadcast their policy preferences. That does not end forward guidance. It hands the microphone to hawks and disgruntled colleagues, allowing their pronouncements to shape expectations. The result is neither coherent communication nor disciplined policymaking. A central bank should distinguish a fading supply shock from persistent demand pressure, not let its loudest voices dictate the response. October’s CPI rose 0.4 per cent, with core up 0.3 per cent. Governor Waller is floating a half-point December increase. A tenth above expectations, and out comes the sledgehammer. Yet services accounted for nearly 90 per cent of core inflation, with shelter contributing half of core services. Owners’ equivalent rent, an estimate, not a payment homeowners make, dominated shelter rent. Housing scarcity is not a wage-price spiral. Higher rates can aggravate it by raising construction costs and locking homeowners into existing mortgages. The supposed cure risks feeding the disease. Meanwhile, the energy shock is unwinding. West Texas crude has fallen more than 20 per cent from late October; wholesale gasoline is down 27 per cent since September. One-year inflation swaps are below 2 per cent. Six-month annualised core CPI is 2.7 per cent; Dallas trimmed-mean PCE is 2.4 per cent. Third-quarter productivity rose 3.6 per cent annualised, while unit labour costs fell 0.7 per cent. These figures demand judgment, not reflexive tightening. Raising rates into easing energy prices and falling labour costs would risk turning a temporary inflation shock into recession.

Warsh wants to scrap forward guidance and dot plots, yet Fed officials remain free to signal their own policy preferences under the existing communications rules. He is effectively ceding forward guidance to the hawks and disgruntled colleagues. That is no way to run the Fed.

This is what you get when Fed Technocrats that have no subject matter expertise to set monetary policy. Barkin implies the demand side of the economy is overheating. This is so wrong. Yes incompetence.

Waller’s Last War: Hiking as Energy Prices Collapse Governor Christopher Waller’s speech is a masterclass in fighting the last war while the current one ends. He ignores the Dallas Fed’s trimmed-mean PCE, a superior gauge of underlying inflation. Crude oil and wholesale gasoline prices are in freefall. WTI has dropped roughly 20 percent from late-October peaks near $104, and RBOB gasoline futures have collapsed more than 20 percent in weeks. Retail gasoline just slipped below $4 a gallon for the first time since midsummer. These are large, rapid supply-side improvements. Energy was the principal driver of the inflation Waller cites; its reversal is already transmitting into lower prices and will ease pressure across the economy. Waller dwells on September’s headline PCE near 3.6–3.7 percent and core of 3.1 percent, fretting over “breadth.” He is silent on the trimmed-mean PCE, which stood at just 2.3 percent year-over-year in September, near the Fed’s target. By stripping extreme moves, the trimmed mean reveals a far milder underlying trend. Treating lagged, energy-distorted readings as decisive while discarding the cleaner measure is selective analysis, not careful policy. Its incompetence. The headline inflation impulse from high energy prices is dissipating in real time. Hiking into that dissipation,pre-committing to at least 25 basis points, or floating 50 if October CPI is merely steady, risks converting a temporary supply shock into an unnecessary slowdown. Monetary policy operates with long lags; tightening further as the dominant inflationary impulse reverses is pro-cyclical error. Making policy forecast on one CPI reading, not PCE, is a classic example of the recklessness and arrogance that exists engrained in the technocratic elite. Why does the Fed ignore the data and the theory? The Economic Outlook and Some Thoughts on Labor Market Dynamism via @FederalReserve

The Data Center Buildout Is Not Dead The Senate’s 73-25 vote to advance the Bipartisan American Affordability and Jobs Act undercuts the claim that rapid data center expansion is politically finished. With White House support and President Trump publicly backing the measure as a way to unleash energy production and protect ratepayers, the bill both raises costs for operators and clears the largest practical obstacle to new capacity: the inability to build power and transmission on a workable timeline. Under the legislation, large loads of roughly 20 megawatts or more must cover the full incremental cost of the generation, transmission, and distribution upgrades built to serve them. Ratepayers are shielded from cost shifting, and states gain additional tools to impose collateral or other requirements. Modeling suggests this could meaningfully increase the retail power price faced by data centers and add roughly 10 percent to the annualized cost of a gigawatt-scale facility. Those numbers are real, and some marginal projects will be repriced or delayed. They are not fatal. The same bill shortens federal environmental reviews, limits the window for legal challenges, strengthens project certainty, and expands federal transmission siting authority after a defined state review period. The binding constraint on data center growth has not been the willingness of capital to fund servers; it has been the multi-year wait for reliable power. Faster permitting of generation and transmission addresses that bottleneck directly. Higher power costs and clearer cost allocation will push some developers toward co-located generation or more selective site selection. That is an adjustment, not a shutdown. The combination of ratepayer protections, accelerated infrastructure deployment, and explicit Trump administration support is more likely to sustain the buildout than to end it. The political signal is that Washington is prepared to let the projects proceed, provided the incremental costs fall on the operators rather than on everyone else.

Don’t Strangle the Supply-Side Recovery The case for another Federal Reserve rate increase is crumbling. Gasoline prices are falling. Some DRAM spot prices are retreating. Two-year inflation breakevens have dropped 20 basis points in three days to 2.18%. Yet the tightening debate remains trapped in yesterday’s inflation. That is how policy mistakes happen. Tariffs and chip shortages raise the price level. They do not automatically create permanently higher inflation. Once those increases enter the comparison base, their contribution to annual inflation fades. A product that rises from $100 to $110 records ten percent inflation. If it stays at $110 a year later, inflation is zero. No rate increase is needed to make that arithmetic work. As 2026’s price spikes roll out of the annual comparison in 2027, base effects will pull inflation lower, without another Fed hike. Now add actual price declines. Gasoline and parts of the memory market are reversing earlier increases. Disinflation is not merely approaching. It is underway. The bigger story is productivity. Strong productivity growth, falling unit labour costs and a strong jobs market describe an economy expanding its capacity, not simply overheating. Businesses can produce more, support higher wages and contain costs simultaneously. These are the green shoots Trump’s supply-side agenda is designed to cultivate: stronger investment, greater productive capacity and non-inflationary growth. The test of that agenda is sustained improvement in output and costs, not whether every strong jobs report triggers another inflation scare. Employment growth is not the enemy of price stability. Weak productivity is. Treating every sign of economic strength as excessive demand risks strangling the supply expansion that makes growth sustainable. The bond market is delivering its own warning. Two-year breakevens approaching 2% undermine the argument that inflation expectations are becoming unmoored. In fact they’re negative for the year. The Fed must explain what another hike would fix. Higher borrowing costs cannot repeal tariffs or manufacture chips. They can crush investment just as productive capacity begins delivering results. Those demanding tighter policy carry the burden of proof. Do not punish stronger supply for looking like stronger demand.

After the Midterms: The Scarcity Trade Is Over Markets are still priced for scarcity and endless disruption—higher rates, $200 oil, and geopolitical disorder that never ends. After the midterms, that narrative breaks. Political incentives shift from demonstrating chaos to delivering results ahead of 2028. Expensive energy, unaffordable housing, and punishing financing costs are electoral liabilities, not assets. Stabilization, investment, and lower inflation become the priority. The call is straightforward: the U.S. Treasury curve steepens toward a 100-basis-point 2s10s spread, with the 10-year falling near 4% and the two-year toward 3%. Oil sells off. Productivity-led growth takes hold as the economy escapes secular stagnation on the model of the post-World War II expansion. Simultaneously, a crypto supercycle emerges, comparable in scale to the commodity boom that followed China’s WTO entry. These are not separate bets. They share a common foundation: abundance—more productive capacity, cheaper intelligence, and financial infrastructure that mobilizes capital more efficiently. Wall Street is still underwriting persistent scarcity. The opportunity lies in its erosion. Intelligence has infinite demand; the constraint is no longer technology or capital, but the outdated frameworks pricing the old world.

The Wall St Bear thesis on AI is there are no visible results to show productivity growth. The data suggests that the Bear thesis is just Doomer porn. Companies promised AI gains — here's how the payoff showed up in earnings

Elections have consequences. Democrats blocked the Clarity Act in the Senate over Trump’s crypto holdings. The bill would have required covered platforms to register, use qualified custodians, segregate customer assets, and allow faster temporary freezes. Weeks later Binance was hit by the largest crypto hack on record (~$6.3B). The safeguards the bill would have put in place never took effect. This is what happens when politicians vote on political vendettas instead of policy.

Remove Geopolitical Risk, Deflate Inflation Fear Treasury Secretary Scott Bessent says oil flows from the Persian Gulf and alternative export routes have surpassed prewar levels, excluding Iranian barrels. That is the first step. The next is a Trump deal that eliminates Iran’s path to a nuclear weapon and removes the geopolitical risk premium. Relief at the gasoline pump and in diesel prices, would be significant. My bet: Trump gets a deal, oil falls, and bond yields drop. Markets are not positioned for that reversal. Investors and the Keynesians at the Fed are treating the oil shock as permanent rather than a disruption whose costs can unwind. The overlooked factor is delivery. Brent and West Texas Intermediate do not capture the full expense of getting crude to refineries. Tanker costs from the Persian Gulf to Asia have exceeded $37 a barrel. Shipping American crude to Asia has cost $30–35. Insurance adds another burden. Restored flows are necessary but insufficient. Barrels are moving through an expensive network of detours, transfers, and constrained shipping capacity. An enforceable deal that ends Iran’s nuclear threat and restores normal passage through Hormuz would attack both the underlying danger and its economic cost. Voyages would shorten. Tankers would return to normal service. Freight and insurance costs would fall. Crude would lose its supply-disruption premium. Consumers would benefit twice: cheaper oil and cheaper delivery. Falling gasoline prices would reverse households’ most visible inflation signal. Cheaper diesel would ease costs throughout trucking, agriculture, construction, and distribution. The energy-driven inflation spiral anchoring the Fed’s fears would evaporate as its catalyst ran backward. Bond yields would fall before official inflation figures caught up, weakening the case for restrictive policy. Restore flows. Eliminate the nuclear threat. Remove the risk premium. Trump gets a deal. Oil and rates drop. Markets are looking the wrong way. And the world is safer. Yes a peace dividend.

America First Is Not a Passing Phase Prime Minister Mark Carney appears to be betting that America First is a temporary departure from the economic order Canada once knew. I respectfully disagree. The tone in Washington may change under a new administration. Canada should not assume the underlying policies will change with it. The mistake is to confuse Donald Trump’s political style with the durability of his economic agenda. A successor can reject his rhetoric while retaining the emphasis on domestic production, investment and American economic interests. Canada cannot afford to build its strategy around the expectation that those priorities will disappear when Trump leaves office. Nor should we confuse a more diplomatic president with a renewed American embrace of globalization. Friendlier language does not necessarily mean more open markets. Washington can be warmer toward its allies while remaining determined to bring investment, manufacturing and supply chains home. Carney himself has supplied the right warning: “Nostalgia is not a strategy.” Yet treating America First as a passing episode risks precisely the nostalgia he cautions against, the belief that Canada can wait out an uncomfortable administration and then resume business as usual. John F. Kennedy offered a useful warning in a 1963 speech in Frankfurt: “Change is the law of life. And those who look only to the past or the present are certain to miss the future.” His subject was Atlantic partnership, not economic nationalism, but the warning against looking backward fits Canada’s predicament. Canada must recognize the structural changes underway in the United States and adjust accordingly. Accepting that reality does not mean endorsing every American policy. It means recognizing that our economic strategy must respond to the America that exists, not the one we would prefer. Yes, Canada needs access to the American market. That is precisely why we must strengthen our own position: attract investment, expand productive capacity, remove domestic barriers and make ourselves a more competitive and more valuable, economic partner. The question is not whether the next president will sound like Trump. It is how much of his economic agenda will survive him. Canada should prepare for continuity rather than count on restoration. Nostalgia is not a strategy. Neither is hope. Carney brushes back Trump on trade, Europe and Russia via @politico

AI’s future is not its current valuation. We’re still in AI’s MS-DOS moment. Broad adoption across the economy and society still lies ahead. The technology’s potential and the investment trade are different things. The “AI is the only game in town—own the bottleneck stocks and lever up” free-lunch phase is over. Chip names (Nvidia, TSMC, Micron) may still have room. The bigger risk is richly valued AI-linked stocks whose prices raced far ahead of revenues. The latest correction looks like the market starting to make that distinction. AI itself doesn’t have to roll over. Rationality may simply be returning and the fever phase ending.