On Wednesday last, the Federal Reserve committed an act of raw politics. After admitting that high interest rates had failed to bring inflation down to its target of two percent, the Fed announced (albeit through the Delphic fog of bureaucratic pronouncement) its intention to cut rates three times next year. So much for wringing inflation out of the system with a “higher for longer” policy on rates.
The problem here is that Ms. Harris, the affirmative-action hire, must be seen by progressives to be going peacefully.
The markets — stocks, bonds, REITs, commodities — soared. As I write these words, all three major equity indexes — the Dow, the S&P 500 and Nasdaq — are up six days in a row. Small caps, which tend to carry heavy debt loads and are thus rate-sensitive, have bounced even higher. (READ MORE from Neal B. Freeman: The Political Superstate Has Emerged)
Why did the Fed move now? Why would it seem to give away much of its hard-won independence for nothing? For three reasons, I surmise. First, the period between Thanksgiving and Christmas is, relatively speaking, a time of low concentration by informed citizens and high absenteeism among media types. From the Fed’s point of view, the less scrutiny of this decision the better.
The second and more compelling reason is that the market surge will be reflected in year-end brokerage and retirement account statements. The “wealth effect” will radiate its good vibes: With the concomitant increase in Required Minimum Distributions, as just one example, every senior in the country will get a raise in 2024. All in, tens of millions of voters will, at least for a time, feel more positively inclined toward Bidenomics.
The third reason is the rigidities of the political calendar. Time is short and, for the Biden campaign, desperate measures are called for. (You know that time is short when both David Axelrod, speaking for Barack Obama, and Albert Hunt, speaking for the conventional soft-Left, say that Biden looks like a loser and should step aside. And a desperate measure can be defined in this context as the willingness to risk destruction of the nation’s legal tender.)
Will it work? Will the Fed be able to levitate the leaden Biden campaign? In the very short term — early January polling, say — Biden may get a bump that the media will hail, predictably, as a surge. But what then? Some of my political friends, long in the tooth but deep in experience, think the “401K bounce” will be ephemeral and that the “ultimate desperate measure” must then be taken by senior (and notoriously unsentimental) Democrats.
It might unfold this way. Biden would say that (his troubled son, his troubled domestic economy, his troubled global allies – take your pick) require his undivided attention and that he will not be running for re-election. Before he makes that grand sacrifice, however, he must replace Kamala Harris, who has, among a broad range of constituencies, given affirmative-action hiring a bad name. The replacement candidates have been identified: Gavin Newsom, Michelle Obama, Gretchen Whitmer, in one order or another.
The problem here is that Ms. Harris, the affirmative-action hire, must be seen by progressives to be going peacefully. Which, left to her own wits, she would doubtless do next Tuesday — to, say, an endowed chair at UCLA. Gender Studies, perhaps. (READ MORE: The Buckley Legacy: Now It’s Controversial on the Right?)
Enter Doug Emhoff, the second gentleman, or whatever he goes by in Washington these days. In real life, he’s a Hollywood lawyer, a good one, which is to say that he’s a dealmaker. What happens next? We can say this much with confidence: Those senior and notoriously unsentimental Democrats will not be negotiating her departure with the ditzy Kamala but, rather, with the wily Doug. And what would be on the table? Might it be the World Bank? President of the Obama Foundation? Chairman of the Disney board (which, quite by chance, would make the wily Doug King of Hollywood)? This would be a sticky situation for lots of people. But not for Doug Emhoff. He would be the most powerful man in Washington, making the deal of the century. So, buy those Emhoff futures.
But investors should note: The distinguishing feature of a futures contract is that it carries a rock-hard expiration date. Doug Emhoff can’t afford to wait even a day too long. The clock is ticking.