Why Is Fed Ignoring Critical Data? (Uncut) 05-10-2025

Layoffs About To Skyrocket, Why Is Fed Ignoring Critical Data? | Danielle DiMartino Booth

That’s exactly right. And you are exactly right. But right now, the Fed is communicating to the public.

Because the bigger drag a year ago, it was all about inflation anxiety. Today, it’s all about jobs. And that has caused a greater drag in expectations, whether you’re talking about University of Michigan or conference board.

And that is indicative of exactly your point, will it make a difference? No. Danielle DiMartino Booth, founder and CEO of QY Research and notable Fed Insider joins us once more to discuss what happened this week with the FOMC meeting, what’s next with FOMC policy, and economic indicators that may point to something that Powell may or may not have told us already. We’ll find out what that means.

Danielle, welcome back. Good to see you. Good to see you as well.

Thank you for having me. Congrats on your almost 10 year anniversary of your company. That’s fantastic.

Yes, it’s hard to believe. I left the Fed almost 10 years ago, Richard Fisher retired, and I followed him out the door. But I can’t believe it’s been nearly a decade.

We’ll talk about that towards the end. You’ve got some special promotions for me and my audience. So thank you for that.

I want to play for you a few clips from the Fed from the FOMC conference this week. I know you’ve been critical of Powell, Chair Powell. Let’s just react together and see what happens.

Thank you. Edward Lawrence with Fox Business. So we had the CPI report that came out that showed month over month, the first decrease in inflation in about three years.

The jobs report, you said solid that we saw at the same time, we have those new tariffs that we’re living under. So given this, should the Federal Reserve be cutting rates at all this year? It’s going to depend. I think you have to just take a step back and realize this is why we are where we are is we’re going to need to see how this evolves.

There are cases in which it would be appropriate for us to cut rates this year. There are cases in which it wouldn’t. And we just don’t know until we know more about how this is going to settle out and what the economic implications are for employment and for inflation.

I couldn’t confidently say that I know what the appropriate path will be. So then how does President Trump calling on you personally, as well as the Federal Reserve to make rate cuts affect your decision today and affect your job difficulty? It doesn’t affect our doing our job at all. So we’re always going to do the same thing, which is we’re going to use our tools to foster maximum employment and price stability for the benefit of the American people.

We’re always going to consider only the economic data, the outlook, the balance of risks, and that’s it. That’s all we’re going to consider. So it really doesn’t affect either our job or the way we do it.

Okay. We’ll comment on the Trump bid in just a second here, but let’s go back to the first part of the conversation here. So, as you know, the Fed kept rates unchanged.

Powell says per the clip, I’m not confident what the appropriate Fed policy should be. Can you just evaluate that statement and other things that we played? Well, it’s fairly curious that he has this continued kind of insistence, petulance even, that the labor market is solid, that he’s uncertain in terms of the direction of inflation. The Fed’s formal inflation mandate is the headline PCE.

And that means that they take into account lower crude oil prices, lower gasoline prices. The fact that once you get into the core, the fact that shelter is coming down, home prices are beginning to fall in a good portion, about 30% of the country. So a lot of factors suggest that inflation is going to continue to decline on a year over year basis.

And that the unemployment rate is going to rise just based purely on what we’ve heard from the federal government and from the private sector. Why do you think tariffs won’t play a role in counteracting this declining inflation you just spoke about? They certainly could. We know that companies are struggling under rising input costs.

But to take one example, here I am in Dallas in the Federal Reserve’s 11th district. This is ninth largest country in the world, 10% of US consumption, largest exporting state. And yet, in the latest Dallas Fed survey, 60% of survey respondents said that they would like to raise prices.

But 38% said that they’re failing to be able to push through, to follow through, because their customers cannot pay the higher prices. So that’s a real conundrum. And I think that Chair Powell, what he’s missing here is higher input costs do not necessarily make for higher inflation if you cannot pass those along to the buyer.

In that case, you end up not with stagflation, but you end up with a margin squeeze. Interesting. So I think is your base case scenario then recession and then therefore disinflationary environment for the rest of the year? Absolutely.

Look, in the year ended March 31st, there were 2.1 million jobs originally reported. That number has been taken down by 886,000 with only half of a year of that year ended, March 31, 2025, with only half a year of revisions in hand, 41% downward revisions. And we don’t get fourth quarter data until June the 4th.

We don’t get first quarter 2025 data until the very first days of September. So all indicators are pointing at job losses having already begun. Powell said that the tariff impacts hasn’t hit the economy yet.

He said the shock hasn’t hit yet, despite what we know about poor congestion, business concerns, consumer anxiety, and so on and so forth. Do you think that maybe he’s making the same kind of transitory inflation mistake that some argue he made a couple of years ago? Well, I think the mistake that he’s making now is the polar opposite of that. I think that right now he’s operating under the assumption that tariffs are going to cause persistent upward pressure in consumer prices at a time when consumers are telling you, they’re showing you, they’re demonstrating in Fed data, whether it’s the Beige Book, whether it’s the Philadelphia Fed for the last two surveys that they’ve published saying Americans are increasingly only able to pay the minimum on their credit cards, whether it’s other forms of consumer delinquencies.

Everything that we’re hearing, including the Fed’s Beige Book, which was appreciably weaker than it was prior to the September 2024 meeting. Bloomberg Economics does a great job with natural language processing of running the Beige Book language through a big server. And it popped out results that showed that the Beige Book, which the Fed is supposed to follow very closely, right? It’s an aggregation of all 12 districts and what companies and consumers are experiencing across the nation.

And that was appreciably weaker than it was in September of 2024 when they played catch up and rolled out an unusually large 50 basis point rate cut. At this particular meeting, he chose to roundly disregard his own data. And I find that to be, this brings President Trump into the discussion because there really is no other explanation for Powell ignoring the data that are staring him in the face.

Well, speaking of data here is this is from your daily Feather sub stack. Great read. We’ll take a look at some of these charts from your one of your latest postings here.

Loosening indeed. Indeed, total job postings are going down on the bottom left. You’ve got here discretionary risk job postings going down.

And then this is from loading and stocking, beauty and wellness sports. So different sectors all pointing to a slowdown in hiring. How does that translate though to higher unemployment, which is what we’re talking about earlier? David, if you could leave those up for just a minute and focus on the top right chart, which shows that there was a huge spike in imports, front loading ahead of tariffs at the wholesale level, producers trying to get ahead of tariffs.

And that actually pressed upwards job postings for loading and stocking that orange line. And look at the fall off since then. And this is why my good friend Anna Wong is predicting that transportation and warehouse loading, stocking, this particular industry alone, which created 50,000 jobs in the first three months of 2025 is actually going to drag the nonfarm payroll print into the negative because you’ve seen such a violent reversal in this sector.

Again, as the ports empty, as activity declines, as a transportation company in Detroit with between $100 and $500 million in liabilities filing for chapter 11, we’re seeing huge. How does that even make sense? You’ve got real goods imports spiking, like you said, but then they’re not hiring more hands to meet this volume? It’s coming down so quickly. So the real goods import line, that purple line is lagged compared to the job.

So we don’t have that data in hand yet, but we can tell that the severe decline in the demand for labor tells us where that purple line’s headed. Again, that’s the nature of front loading. That’s the nature of running and buying and loading up on inventory ahead of the tariffs.

But again, you’ve got to have the end demand come through in order to clear that inventory, A, and B, there ain’t much behind it, which is why it looks like, again, we could see a negative payroll print by the time we see the May data hit. By the way, just sidetracking a bit, the Q1 GDP for real GDP growth was negative, partly due to the fact that imports were so high the first quarter, precisely for the front running reasons that you stated. Is it possible that if we smooth this out for the next quarter, we’ll get a positive print? Is that more likely, you think? It’s certainly a possibility.

I follow the godfather, the architect of GDP modeling that every other GDP model has been based off of, Ben Hurzon. He was at Macroeconomic Advisors. He’s now at S&P Global.

Since that first print came out, he’s further reduced into the red his first quarter GDP estimate, and I believe he’s at 0.8 for Q2. And that number has also been coming down. And a lot of what we’re seeing reflected is the massive input to GDP of consumption and personal consumption expenditures, which is falling at a rate that’s going to be more than strong enough to offset what you’re describing, which is the pendulum swinging back as this import drag on GDP math dissipates.

Okay. So give us a forecast for the labor market this year. It’s been not great.

Is it going to be better or worse? Give us a sense of where unemployment’s headed. So again, we’re at a 4.2% unemployment rate. That’s about the cycle high.

I would expect that’s going to continue rising. We’ve been hearing that in layoff announcements. We had eight large bankruptcies in the first eight days of May and seven for the entire month of April.

So there’s an acceleration of the distress in the economy, and that is why we’re expecting to see negative payroll print starting with the next report. Here’s the thing. The Michigan Survey for Consumer Sentiment, among some other sentiment indicators, are all pointing to a really big decline in consumer confidence.

Part of that comes from the fact that people are expecting higher prices from inflation, well, for tariffs specifically. But I’m just wondering, Danielle, even if the Fed were to lower rates, would that help consumers at all? Would that induce spending? I mean, if I think that things are going to get more expensive, I don’t really care if the Fed fund’s rate is 25 basis points lower. I’m still not spending money.

That’s exactly right, and you are exactly right. But right now, the Fed is communicating to the public because the bigger drag, whether it’s University of Michigan or conference board, a year ago, it was all about inflation anxiety. Today, it’s all about jobs, and that has caused a greater drag in expectations, whether you’re talking about University of Michigan or conference board.

And that is indicative of exactly your point. Will it make a difference? No. But is the Fed symbolically saying, we want to keep monetary policy overly restrictive, despite what you’re telling us, despite the fact that you’re telling us that, again, a year ago, people who were switching jobs, according to the Atlanta Fed wage tracker, they were making more.

Today, their year over year gains are 3.4% compared to 3.5% for people who stay. So job switchers are actually making less in terms of wage gains. And by the way, that number has been cut by two thirds in terms of the wage gains compared to what they were in the aftermath of the economy reopening.

These are very real, hard data, by the way, indicators that the Fed should be paying attention to. We just had a negative productivity print. Right.

Okay. This next clip goes, it’s a good segue. It talks about soft and hard data, this divergence.

I’ll just play you 30 seconds of it. It goes back to your earlier point. Courtney Brown from Axios.

I guess, you know, we talked about some of the indications of potential layoffs, price hikes and economic slowdown, all being evident in the soft data. I’m curious why the Fed needs to wait for that to translate into hard data to, you know, make any type of monetary policy decision, especially if the hard data is not as timely or might be warped by tariff related effects. Are you worried that the soft data might be some sort of false warning? No, I mean, look at the state of the economy.

The labor market is solid. Inflation is low. We can afford to be patient as things unfold.

There’s no real cost to our waiting at this point. Also, the sense of it is we’re not sure what the right thing will be. You know, there should be some increase in inflation.

There should be some increase in unemployment. Those call for different responses. And so until we know, potentially call for different responses.

And so, you know, until we know more, we have the ability to wait and see. OK, until they know more. I saw you smile there.

I’ll let you respond. Look, I mean, she’s the reporter from Axios was saying the soft data is telling us that things are bad. Layoffs are increasing.

And she passes the mic back to Powell. He references his notes and reads and repeats that the labor market is solid. He literally is telling her that she’s imagining what she’s seeing in the soft survey data.

And that is beyond disingenuous. Can you just explain to the layman what soft data means versus hard data? So maybe people understand what the Fed’s looking at and thinking. Yes.

So we call it a year ago, the percentage of individuals who were queried about, do you see unemployment rising in the next 12 months? That was like in the 20s. Now it’s like 66 percent. And so in the past, and this is something that Goldman, the Goldman Sachs, Jan Hatia’s chief economist, published over the weekend, this last weekend, in the past, once you get past a certain threshold, say, oh, I don’t know, for our purposes of QI research, the threshold is 50 percent.

Once more than half of the population foresees a rising unemployment rate, it tends to be a self-fulfilling prophecy. And it tends to rise. When you get to 66 percent, there is something wrong with the hard data, that it is so disconnected from the soft data, because you can’t tell 66 percent of Americans that they’re imagining something and that the job market’s not weakening.

They’re seeing it with their own eyes. It just hasn’t manifested yet in what the Axios reporter pointed out, extremely lagged data. Should, just as this general philosophy, or should the Fed be making decisions on coincident, perhaps even leading indicators versus our data that, per you and the reporter pointed out, is lagging? On the one hand, there is, yes, hard data that can prove that X, Y, Z is happening.

On the other hand, there may be behind. But for the reporter’s point, maybe soft data is misleading sometimes. Soft data tends to be misleading when it comes to looking at it through the widest lens.

In other words, economists have always rightly said, just because expectations decline does not mean that consumption’s going to decline. A does not equal B. Even though people are saying, hey, I’m depressed, I’m down in the dumps, life’s not good, they’ll still go out over the weekend and eat out and go to the mall and go shopping, whatever. Consumption will still go up.

That’s kind of important when consumption’s 70 percent of GDP. When sentiment, when soft survey data begins to matter, and you read the Daily Feather and we plotted this out, is when individuals who are college educated and or in the highest income terciles, when their sentiment, when their expectations become very, very down in the dumps, then we can plot that directly with an extremely tight correlation compared to consumption, because they’re the ones who spend the vast majority of money in the U.S. economy, right? The top 10 percent of earners account for 49.7 percent of spending in the United States. The next quintile down, they account for another 20 percent.

Now, you’re talking about 70 percent of consumption. So when college educated and higher income earner, when their sentiment declines, it translates directly into lower spending. And that’s just what history has shown us.

I mean, you’re right. Is there sentiment declining, though? Let’s take a look at the stock market. I know the wealth effect plays partly into this.

People who own assets typically feel less wealthy when markets are into freefall. We had a bit of a bounce back, though. So can you just evaluate the sentiment from the top tercile? And that is, that makes things very hopeful that this is just going to be a hiccup in the soft data, that that works as long as we don’t continue to see layoffs pile up.

OK, and that’s what’s critical. It’s it’s not expectations that the economy is going to weaken. It is higher income earners expectations that the unemployment rate is going to rise because they’re the ones in charge of hiring and firing.

And that’s why we have a direct pass through to consumption going forward. Complicating matters even more is the fact that the majority of the people who are getting hit with the largest income shocks when it comes to student loan repayments make between 100,000 and 250,000 dollars a year. Those are the ones in the crosshairs of the Linda McMahon secretary at the Department of Education saying that wage garnishment is going to start this summer.

FICO scores are falling. Buy now, pay later is now being reported to the trans unions, the experience of the world. And we’re hearing more and more people say, I thought I had access to credit, but I don’t have the access to credit that I thought I did.

Highly unusual to see revolving credit, i.e. credit card revolving credit year over year, be negative for successive months. But that’s exactly where we are. Okay.

So how does this, A, uncertainty in future tariff policies and B, expectations for tariffs hurting margins, how does that translate to actual investment implications? Are there certain sectors we should be staying away from or perhaps looking more into, more domestic manufacturing perhaps? Are there asset classes that we should be favoring? What do you think? So we are seeing, to your point, and this is what’s troubling. When you look across the country at all these different Federal Reserve regional surveys, the business outlook has been very bumpy, decline, decline, decline, then it’ll pop back up. But capital expenditure expectations have been much steadier as a factor of time.

They have fallen out of bed. They have followed declining business outlook into the negative. And this is one of the things that the media has, I can’t believe I’m saying this, but that the mainstream media has done a pretty good job of reporting about is the collapse in capital expenditure plans.

That is usually a longer term economic signal as opposed to what’s your outlook for your business, positive or negative. Those types of sentiment indicators tend to vacillate a lot. But if you’re a Joe Q, Jane Q, CEO, CFO, and you’ve got long term plans, you’re going to keep those in place unless you think something really bad is happening.

Or like when the major casino company, you’re going to make an announcement just like you did a few days ago that said, you know, we were going to plunk $300 million into renovating the Encore Tower. We’re pulling all of our capital expenditure plans. And we’re hearing that from one company after another, company after another.

And that is indicative of C-suite occupants seeing economic weakness stretching further out on the horizon, so far out on the horizon that they’re pulling planned spending, they’re pulling planned capital expenditures. Okay. If CapEx is declining, presumably that means more cash freed up on the balance sheet.

Or is that because they just don’t? Yeah, I guess that’s an indicator for less growth. But how are you- Yeah, it actually has to do with CEOs and CFOs trying to make sure that they don’t blast through. And indeed, banks are telling us as much, right? Companies are doing as they did when COVID hit.

They’re drawing down their lines of credit. They’re shoring up the balance sheet, making sure that they have enough cash on hand just in case. And that’s what we tend to see in recession.

What do you make of this DXY chart? It was a scary looking chart if you just take a look at what happened since the beginning of 2025. But actually, if you zoom out to a multi-year horizon, we’re just at multi-year lows, but it’s been lower before, right? So I’m just wondering whether or not the dollar is signaling anything unusual right now? Or is this just the beginning of another rebound here? So to your point, in 2008, in 2020, we had major moves in the dollar, which then rebounded. And some of this has to do with the fact that other countries are simply not in a stronger position.

And when you’re talking about currencies, it’s always a game of relativity. You’re seeing other central banks be much more aggressive in easing than the Federal Reserve is, whether you’re talking about the European Central Bank, the Bank of Canada. We just saw a terrible unemployment print in Canada.

But when they’re easing to a much greater extent than the Fed, it tells you two things. A, the Fed’s got its blinders on. Is the US somehow impervious to outside factors, to the global recession? But it also tells you that relative to the United States, other countries aren’t doing that much better, which means the dollar can take a hit.

But is that sustained? Well, what do you I think on a relative basis, we could be in something of a holding pattern after a continued rebound. I don’t mean rebound and roaring all the way to the, I don’t mean full recovery. What I’m trying to say is, I think the Fed’s going to be forced to lower rates this summer, and that that’s going to be offset by weakening economies in the rest of the world.

I don’t think the dollar is going to come roaring back, but I also don’t think that it’s got much more downside. I think we could be stuck in a range for a good portion of the rest of 2025. Okay.

What should be the theme of the rest of the year, if you were to sum it up in a couple of words? For example, 2021 was hedging against inflation. What is it for 2025? Your best offense is a great defense. Okay.

What does that mean, practically speaking? Practically speaking, that means that you should make sure that you’re not on the receiving end of a company that’s just slashed its dividend because it didn’t shore up its cash sufficiently. You should be defensively postured in your portfolio. This is not going to be a time that hiring is going to go flying off the charts.

This is a time when if companies are defensively postured, you should be too. Looking at bonds now, this is the TLT ETF, multi-year lows, Danielle. Is this a buying opportunity for bonds right now? I think it is, but I’ve been saying that for some time.

I’ll be the first to say there’s a little bit of humble pie here because I did not think that the Fed was going to be as tone deaf as it is. I thought by now that we would at least have started in May with rate cuts, and that was not the case. I do think that what we’re seeing with the bankruptcy cycle, with layoffs, we’ve seen the Department of Government efficiency.

The worst of that damage on the federal level was February and March, and yet in April, we continue to see 100,000 plus layoffs announced in the month, which means the private sector continues to weaken and layoffs continue to be pushed through. So when we talk about defensive posturing, is there anything you prefer more than cash? Oh, I mean, certainly. Again, I am all over companies that can service their debt.

I would stay short in duration. I’m all about companies that are going to maintain their dividend, and there are easy ways to play in the ETF space, high dividend paying companies. That’s always something that you can… And they’ve been underperformers in recent years, which tells you something, right? If the max seven’s going nuts, then the defensive high dividend paying stocks are not nearly as sexy, and they’re going to underperform.

I think we’re in an environment where that is going to flip. How exposed are the banks to this risk of consumer delinquency that we’re talking about? How well capitalized are they? And is the banking sector at any risk whatsoever? Whatsoever is a big word when you consider the commercial real estate books of a lot of these banks, in addition to the consumer. I’m hearing from my buddy Lucky Lopez.

He’s my car expert in Las Vegas, but he’s been doing it for 20 years, that banks are withstanding such huge losses in their auto loan books that repo lots are now refusing to take cars to auction that are younger than 2019 vintages, because they’re full. And Jamie Dimon himself, right? He was the one who took the biggest charge off rate in his credit card book. Why? Because he assigned to other banks that their charge off rates are going to be increasing as well.

To say nothing of personal loans. And by the way, did I start off by saying commercial real estate? Okay. Residential.

Let’s close off here. Residential real estate. How do you feel about the housing sector right now? Rates are expected to come down at some point.

Lower mortgage rates would certainly be a relief, especially when rejection rates for purchasing a home, refinancing a home are upwards of 40%. Because banks, again, are tightening lending standards. That’s data out of the New York Fed that shows these rejection rates.

So what you see every week with, oh, purchase application activity was up this week. You can apply, but you’re not necessarily going to get approved. And that is, again, because banks are losing money on other areas of their loan books.

But to your point about residential real estate, we are seeing an unseasonal increase. And this is coming to us from anything from home builders to existing home supplies, whether it’s Redfin or Lenar Homes. There’s an unseasonal increase in inventory.

And that continues to rise. Home builders are spending increasing amounts on incentives. They’re continuing to buy rates down to move the product.

You actually have a situation where the existing home price, I want to say that it’s either the newer existing home price. I’m saying it backwards. Look at Melody Wright’s Twitter feed.

But right now, we’ve had existing home prices and new home prices cross streams because of the level of discounting that’s occurring on the new home side to move the product. But everything from the FHA scandal unfolding and foreclosures starting there in September, existing home sellers are rushing to market because they didn’t get the price that they thought they were going to get in the spring selling season. And so you hear from Realtor.com, Redfin, Zillow.

Zillow came out a few days ago, they said, we’re pulling our estimates of home prices for 2025. We now see home prices falling for the full year. It’s simply a reflection of supply and demand, meaning we’re going to have a lot more supply on hand than we thought we would in 2025.

That’s great for buyers because it’s about time. Yeah. OK.

Good to know. Thank you. This is your daily feather.

Where else can we follow you? And by the way, you have an announcement for us. So I’ll leave this on the screen. I do, indeed.

We are going to be rolling out a promotion to mark the 10-year anniversary. I can’t believe I’ve been writing this much for 10 years, but I have and I still love it. You have a word count, a 10-year word count for us? No, I’m kidding.

Oh, my God. I mean, wow. Every week is upwards of 10,000 words.

Let’s put it that way. The weekly and the daily and my Saturday intelligence briefing outlook for my institutional clients, I write more than 10,000 words a week, which that’s kind of mind-blowing. But in any event, we’re going to be running a huge promotion.

Look to my Twitter feed for some links and codes and what have you. I’ll send them to you as well, David, so you can provide them to the people watching you and following you closely on YouTube. So I’m very excited.

And if you don’t follow me on Twitter, please do at Demartino Booth. Right now, I’m spending an inordinate amount of time explaining to people that the Fed is not conducting quantitative easing. So come get educated there because there’s a lot of scammers out there that are trying to convince you otherwise.

Okay. Well, let’s not get scammed. So follow Danielle there.

Links down below. For The Real Deal, thank you very much for coming back on the show. Appreciate your time as always.

And thank you for having me. Thank you for watching. Don’t forget to like and subscribe.