When Invincible Ignorance Dominates...

The Fed will have a hard time trying to offset it!

Tony Moran of ABC did a “100-day” interview with president Trump. You have to wonder why he was elected president!

Just one clip (on Kilmar Abrego Garcia):

PRESIDENT DONALD TRUMP: -- he said he'd -- wasn't a member of a gang. And then they looked, and --

TERRY MORAN: Alright.

PRESIDENT DONALD TRUMP: On his knuckles -- he had MS-13 --

TERRY MORAN: Alright. There's dis -- there's a dispute over that --

PRESIDENT DONALD TRUMP: Well, wait a minute. Wait a minute. He had MS-13 --

TERRY MORAN: Well --

PRESIDENT DONALD TRUMP: -- on his knuckles tattooed.

TERRY MORAN: -- he -- he -- he -- it didn't say-- oh, he had some tattoos that are inper -- interpreted that way. But let's move on

PRESIDENT DONALD TRUMP: Wait a minute.

TERRY MORAN: I want --

PRESIDENT DONALD TRUMP: Hey, Terry. Terry. Terry.

TERRY MORAN: He -- he did not have the letter --

PRESIDENT DONALD TRUMP: Don't do that -- M-S-1-3 -- It says M-S-one-three.

TERRY MORAN: I -- that was Photoshop. So let me just--

PRESIDENT DONALD TRUMP: That was Photoshop? Terry, you can't do that -- he had --

-- he-- hey, they're givin' you the big break of a lifetime. You know, you're doin' the interview. I picked you because -- frankly I never heard of you, but that's okay --

TERRY MORAN: This -- I knew this would come --

PRESIDENT DONALD TRUMP: But I picked you -- Terry -- but you're not being very nice. He had MS-13 tattooed --

TERRY MORAN: Alright. Alright. We'll agree to disagree. I want to move on --

PRESIDENT DONALD TRUMP: Terry.

TERRY MORAN: -- to something else.

PRESIDENT DONALD TRUMP: Terry. Do you want me to show the picture?

TERRY MORAN: I saw the picture. We'll -- we'll -- we'll agree to disagree --

PRESIDENT DONALD TRUMP: Oh, and you think it was Photoshop. Well --

TERRY MORAN: Here we go. Here we go.

PRESIDENT DONALD TRUMP: -- don't Photoshop it. Go look --

TERRY MORAN: Alright.

PRESIDENT DONALD TRUMP: -- at his hand. He had MS-13 --

TERRY MORAN: Fair enough, he did have tattoos that can be interpreted that way. I'm not an expert on them.

I want to turn to Ukraine, sir --

PRESIDENT DONALD TRUMP: No, no. Terry --

TERRY MORAN: I-- I want to get to Ukraine--

PRESIDENT DONALD TRUMP: Terry, no, no. No, no. He had MS as clear as you can be. Not "interpreted." This is why people --

TERRY MORAN: Alright.

PRESIDENT DONALD TRUMP: -- no longer believe --

TERRY MORAN: Well.

PRESIDENT DONALD TRUMP: -- the news, because it's fake news --

TERRY MORAN: When he was photographed in El Sal -- in-- in El Salvador, they aren't there. But let's just go on --

PRESIDENT DONALD TRUMP: He is --

TERRY MORAN: They aren't there when he's in El Salvador.

PRESIDENT DONALD TRUMP: --there -- oh, oh, they weren't there --

TERRY MORAN: Take a look at the photograph --

PRESIDENT DONALD TRUMP: But they're there now, right?

TERRY MORAN: No. What --

PRESIDENT DONALD TRUMP: But they're there now?

TERRY MORAN: They're in your picture

PRESIDENT DONALD TRUMP: Terry.

TERRY MORAN: Ukraine, sir.

PRESIDENT DONALD TRUMP: He's got MS-13 on his knuckles.

TERRY MORAN: Alright. I --

PRESIDENT DONALD TRUMP: Okay?

TERRY MORAN: -- we'll -- we'll take a look at it --

PRESIDENT DONALD TRUMP: It's -- it's -- you do such a disservice --

TERRY MORAN: We'll take a look. We'll take a look at that, sir --

PRESIDENT DONALD TRUMP: Why don't you just say, "Yes, he does," and, you know, go on to something else --

During the interview, Trump showed Moran around the Oval Office, pointing out a copy of the 1776 Declaration of Independence which announced the original 13 colonies were breaking away from the British Empire.

Referring to the document Moran asked "what does it mean to you?"

The president replied: "Well it means exactly what it says, it's a declaration, it's a declaration of unity and love and respect and it means a lot and its something very special to our country."

The Declaration of Independence ends thus:

We, therefore, the Representatives of the UNITED STATES OF AMERICA, in General Congress, Assembled, appealing to the Supreme Judge of the World for the Rectitude of our Intentions, do, in the Name, and by Authority of the good People of these Colonies, solemnly Publish and Declare, That these United Colonies are, and of Right ought to be, Free and Independent States; that they are absolved from all Allegiance to the British Crown, and that all political Connection between them and the State of Great-Britain, is and ought to be totally dissolved; and that as Free and Independent States, they have full Power to levy War, conclude Peace, contract Alliances, establish Commerce, and to do all other Acts and Things which Independent States may of right do. And for the support of this Declaration, with a firm Reliance on the Protection of divine Providence, we mutually pledge to each other our Lives, our Fortunes, and our sacred Honor.

One conclusion: Trump is going to make everyone´s life very hard, in particular the Fed, which will have to work double time just to try to “offset” the president´s “invincible ignorance”!

The “storm” may be just ahead. The last data point available for inflation, NGDP and RGDP is March, just before the “liberation day” event that will likely upend everything going forward.

Inflation in March, under various guises, was sitting just above the 2% target rate. This, as I argued here, was the Powell Fed chosen outcome to address, and accomodate, the sudden big relative price change “inflicted” by the Covid-19 pandemic.

The charts below illustrate.

By the first quarter of 2025, Aggregate Nominal Spending (NGDP) was above the trend path sustained sice the Great Recession (the result of the Fed accomodating the Covid-19 induced relative price change), but note that NGDP has been growing at the a rate very close to the one that prevailed before C-19, only at a higher level path.

Real output (RGDP) fell below the post Great Recession trend level path when C-19 hit, but quickly climbed back to it. By its “accomodative” actions, the Powell Fed avoided another Bernake-like “dumping of the economy”.

How will the economy evolve under the auspices of “invincible ignorance”? Tariffs will likely increase inflation, even if only temporarily, and reduce output.

If inflation expectations (represented by the 10 yr breakeven rate) remain stable, as it has been for the past three years,

but if uncertainty continues to rise, or stays high,

it is likely money velocity will fall (money demand rise). We don´t know how far or fast velocity will fall, just that to keep NGDP growing at a stable rate, money supply will have to increase enough to offset the fall in velocity and keep NGDP growing at the ~5% stable rate.

What should the Fed do? Regarding that, after today´s press conference someone said:

Nobody expects rate guidance but shouldn't he at least explain/outline the reaction function? Powell literally doesn't want to say anything in the press conference.

Actually, Powell did.

The new Administration is in the process of implementing substantial policy changes in four distinct areas: trade, immigration, fiscal policy, and regulation. The tariff increases announced so far have been significantly larger than anticipated.

All of these policies are still evolving, however, and their effects on the economy remain highly uncertain. As economic conditions evolve, we will continue to determine the appropriate stance of monetary policy based on the incoming data, the outlook, and the balance of risks.

…For the time being, we are well positioned to wait for greater clarity before considering any adjustments to our policy stance.

Under “invincible ignorance”, the wait may be “infinite”!

PS Just saw that Rich Lowry, editor of National Review, which one time was the “intelectual home” of the conservative movement wrote: Why No One Can Win an Argument with Donald Trump?

President Trump, too, never loses an exchange on stage or during interviews. He is The O’Reilly Factor squared, liberated from the confines of a studio and bestriding the world with an utterly impregnable confidence that gives him an advantage in almost any circumstance.

It seems that “impregnable confidence” is the “high-sounding” synonym for “invincible ignorance”!