BullBear Alpha

The strongest economic case against today’s Fed rate hike is simple because you cannot solve an oil supply shock with interest rates. The Fed just raised rates 25 bps to 3.75%-4.00% while a significant portion of the inflation problem is being driven by energy and other supply-side pressures. Raising the Fed Funds rate does not produce another barrel of oil, it does not repair disrupted supply chains and it does not increase refining capacity. What it DOES do is increase the cost of capital throughout the economy. Consumers carrying credit card balances, auto loans and other variable rate debt will now face additional pressure. Businesses that need to refinance debt face higher borrowing costs which can compress margins and potentially lead to reduced investment or hiring. The federal government itself must continuously refinance trillions of dollars of debt. Keeping short-term rates higher increases the cost of financing that debt as securities mature and are refinanced. This is the fundamental problem: If inflation is being generated primarily by excess demand then tighter monetary policy can attack the source of the problem but if inflation is being generated by an external supply shock particularly energy then higher rates attack demand without fixing supply. This risks creating the worst combination possible: Higher energy costs Higher borrowing costs Higher government interest expense Higher corporate financing costs Weaker household purchasing power The cure can become another part of the disease. The Fed absolutely has an obligation to maintain price stability but monetary policy needs to distinguish between demand driven inflation and supply driven inflation. You cannot hike your way into millions of additional barrels of oil and making capital more expensive across the entire U.S. economy will not solve an energy shortage. @SecScottBessent @realDonaldTrump what is the next move? I am now concerned that the @federalreserve pushes the US into a recession in 2027.