Compunded Interest

(Compounded Interest)

There is a saying that good news is bad news, at least as far as markets are concerned. Last Friday's December jobs report showed a gain of 256,000, stronger than expected. A large portion of that was still government or government related. Wall Street, however, was expecting a favorable environment to more rate cuts. That has put cold water by the federal reserve who has not decided on any consistent policy for the entirety of the Biden Administration.


Biden caused inflation by all his spending and the Fed found itself as the brake to keep this inflation under "control." The ultimate rate got as high as 9%. It has retreated some, but prices are still too high for most people and the Fed remains clueless as to hit the target rate of 2%. Nominally, rates get adjusted on the state of the economy.


One recalls the half point cut from September. The Fed has been trying to compensate ever sense. In December, Chairman Powell announced that rate cuts would become more conditional. The markets did not appreciate that and each Average has been down. So far, 2025 has been a down year for Wall Street.


Interest rates have been the problem. Treasuries are becoming more expensive but because there was that 50 basis points reduction, that in a sense was an over-compensation and rates and yields are moving in directions that are not favorable to equities. Hence the recent sell-offs. At the close yesterday, Averages were off better than one percent.


One of the central tasks of the Trump Administration will be the reduction of inflation. He will begin with energy and as oil prices retreat following gas prices, things will become less expensive. A drop in energy costs will translate over time to reduced prices. With expected productivity gains and a cut of regulations, will further diminish inflation.


But the lesson here is that Bidenomics and the attempt to control the effects through interest rates has been a failure. Wall Street likes certainty and reacts adversely when the people who are supposed to know are as confused as everybody else.

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