The U.S. October consumer price index report was released this week, revealing core inflation increased 0.3% for the third month in a row, an annualized rate of 3.6%, the fastest annualized pace since April. The largest driver of inflation in October continued to be shelter, accounting for over half of the increase. US Inflation Stays Firm for Third Month With 0.3% Core CPI Gain | Bloomberg.
Overall, in the chart below, you can see inflation has come down and is leveling off but above the Federal Reserve’s 2% target and higher than the years before 2020.
As the Federal Reserve cuts interest rates, they may slow their pace as they become concerned that core inflation is not approaching its target. Another measure of inflation, the Personal Consumption Expenditures Price Index (PCE), puts a lower emphasis on shelter and is trending towards the 2% target.
Can Powell be Fired? During his campaign, President-elect Donald Trump said the President should have a ‘say’ in setting interest rate policy. This led to reporters asking Federal Reserve Chair Jerome Powell, during the Federal Reserve’s first press conference after the election, whether he would resign if President Trump asked him to. Powell responded with a curt, “No” and only elaborated to follow-up questions that his firing would “not be permitted under the law.” The Brookings Institute dove into the question in 2019: What happens if Trump tries to fire Fed chair Jerome Powell? | Brookings The answer is ultimately there is some precedent that Powell cannot be fired but it would play out in court:
- To remove a Member of the Board of Governors the President would have to show “cause.” This means the individual would have to demonstrate: “inefficiency, neglect of duty or malfeasance in office.” Disagreeing on policy differences would unlikely rise to the level of “cause.”
- Powell holds three positions: Member of the Board of Governors, Chair of the Board of Governors, and Chair of the Federal Open Market Committee (FOMC). The President could try to remove Powell as a Member of the Board or demote Powell from the Chair of the Board (both positions are nominated by the President and confirmed by the Senate). The Chair of the FOMC, which sets interest rate policy, is voted on at the committee level. So, Powell would still be involved in setting interest rate policy while on the board, even if he was demoted.
- A precedent legal scholars point to is Franklin Roosevelt’s firing of William Humphrey, a commissioner on the Federal Trade Commission, over policy differences. The Supreme Court overturned Humphrey’s firing. The Supreme Court would ultimately decide if the same precedent applied to Powell.
2024 and 2019 are quite different times for the country and the economy. In 2019, the Federal Reserve raised interest rates. In 2024, the Federal Reserve cut interest rates in its two most recent meetings and is in the early stages of a cutting cycle. The President firing or demoting Powell would likely lead to stock market uncertainty and volatility, as legal challenges play out, something President Trump pays close attention to. Powell’s term is also up in May 2026. The Real Reason Trump Won’t Try To Fire Jay Powell | POLITICO
Election Results: As more data becomes available from last week’s election, voter trends and sentiments are being synthesized to reflect voter opinions. AGF Investments talked with voters and while voters don’t particularly like Donald Trump, they liked Democrats less, particularly when it came to crime, immigration, and inflation: What the Voters are Saying – AGF Perspectives
Financial Planning/Investment Strategy Corner:
Strong (and Strengthening) U.S. Dollar: After the election, traders began evaluating the economic agenda of President-elect Donald Trump. While Trump has bemoaned the high value of the U.S. dollar, resulting in fewer exports and reducing U.S. jobs, economic principles may keep the value of the dollar high.
First, traders priced in the possibility that Trump’s policies will be inflationary, through tax cuts and deregulation, potentially resulting in the Federal Reserve keeping interest rates higher to combat the inflation. With higher interest rates, owning dollar securities would be more attractive. America’s Strengthening Dollar | Economist In the chart below, the dollar rose leading up to and after the election:
One of Trump’s other economic policy proposals is enacting broad-based tariffs to support domestic companies. Tariffs would effectively increase the price of imported goods, leading to higher prices and higher inflation as the price of these goods increases. The policy can also be argued as deflationary where international products would become more expensive and consumers, faced with higher prices, would likely reduce consumption. This would result in less economic activity after consumers reduce the consumption of foreign goods (or other goods because consumers now have less money to spend). Where this boosts the dollar is if U.S. consumers buy fewer international goods, there is less demand for foreign currency, and the dollar would appreciate as a result. With a stronger dollar, American exports would go down. Trump favors huge new tariffs. How do they work? | PBS News
Currency markets are classically complicated, as there are many variables that can impact a country’s currency but based on the current policies on the table, a strong dollar may continue.
Quick Hits:
- Punctuality over perfection: Missed deadlines lead people to judge work more harshly | The Guardian
- I did a lot for late-night food in college but not quite this: China roads blocked by thousands of cyclists in quest for dumplings | BBC
- Cooking as a therapy: Research Shows That Cooking Can Have a Positive Effect on Your Mental Health | Food & Wine
- I've followed Cooper Flagg for a few years but this was a great story on him, especially when he was 13: The tiny town and legendary 1980s NBA Boston Celtics team that built Cooper Flagg | ESPN
Quote: “Life changes in the instant. The ordinary instant.” – Joan Didion
Thank you for reading RSWA Financial Advisor Insights! We welcome feedback, and please forward this to a friend! Be well, take care, and stay safe!
