Fed cuts 25 bps amid rare three-way dissent — and why the next chair may not be able to deliver more

Without further ado, I think we bring in our first guest.

Fantastic.

Brother Joe,

we have Joe Weisenberg.

Joe Wisen

in the studio. How you doing, Joe? Good to see you.

I'm good. Thrilled to be here on this wonderful Fed day.

Yes. Well, and also, is it not the 10 year anniversary? Was that yesterday? When when did the party was last night?

Last night. Yeah, the party was uh last night. I'm sorry it didn't align with one of your hopefully increasing the number of uh trips to New York City.

I can't wait. I can't wait. Yeah, we're going to be there all the time.

2026 on the IPO front is looking

Yeah, I'm shocked. I'm glad I'm glad you were able to to get out of bed, sober up by 2:00 p.m. Eastern for this for this uh press hit

for the rate cut.

For the rate cut. [laughter]

It's very impressive that I was that I'm here right now. Of course. Yeah, everyone should be very impressed that I'm coming on TBPN today given the circumstances.

Yes. Yes. I'm sure it was I'm sure it was a lot of holiday cheer and a lot of revalry and and it's a massive it's a massive moment. Uh and and again, just congratulations. We've said it before, but uh what a what a generational run with OddLots 10 years. Uh that's that's not easy. A lot of people give up and uh and you've stayed the course and just built and built and built. It's fantastic. Yeah. And everyone is clapping because we're all business.

That's right. That's right. Let's share it. Let's keep going. Let's keep going.

Yeah. Well, no reason to stop. Let's just do this [laughter] one.

Anyway,

did did you see uh did you see our post? Uh Henry on our team hit the timeline. It said

Fed word scissor hands. The Fed just cut interest rates by 25 basis points.

I like Fed.

Anyways, breakdown.

How have we gone this long without anyone making that? I've I've heard a million Fed puns over the years. Inspiration. I think that's the first time I've heard that one. The genuine novelty.

I think it is the first.

That's really good.

Uh novelty is important. Um but explain to us what happened. How are you processing the news? What does it mean?

It's very interesting to think about this cut in the context of some recent developments. So I think I would start by saying that you know two or three weeks ago uh the market didn't even think the Fed was going to cut. If you looked at implied odds from various instruments in which traders trade the short end, it was below 50%. So I think that's an interesting place to start. The fact is it seems like how uh had probably had to do some politics to bring the Fed around and actually make the case because there are crosswinds. We know that the unemployment rate has been creeping up, but inflation is certainly not back to target. And I think actually if you look at the uh statement from the Fed, one of the things they noticed they they noted is that inflation has uh has been elevated since the September meeting that it's actually gone up. They're still not back to their 2% target. In fact, it's actually drifted higher. Now, you could say, okay, well, maybe this is a tariff effect. And so, you look through that, but I still think it's quite notable that we've had basically 5 years of the Fed not hitting its inflation target. Um it's still warm and yet they uh Powell got through a cut. But you could so one might look at this and say um you know what the Fed is doesn't take 2% inflation as seriously as it used to. In fact a lot of people on Wall Street are saying this maybe there's a soft you know 2.8 inflation target right now which maybe the trade-off is worth it because you don't want employment to snowball. You don't want that to run away. So maybe you tolerate higher inflation. But look, I think fundamentally you could ask, does the Fed take 2% inflation as seriously as it used to? But there's something else, an important dynamic, which is that as we know, um, you know, Trump is going to appoint or announce a replacement for Paulo very soon. Trump would like to see more faster rate cuts than we've been getting. But, you know, there were three dissents. And so the president of the Kansas City Fed, Schmid, the president of the Chicago Fed, Goulsby, they uh voted for no uh no cut. The other descent was Steven Myron who voted for a 50 basis point cut. But this is really important because whoever [laughter] um yeah, whoever was here for 50%.

Did anyone did anyone was anyone brave enough to call for a 200 basis point cut or maybe a 500 basis point cut? Let's go negative. Yeah, true. Let's just go straight back to Zer and Zer in one shot.

A venture can we get a venture capitalist in there? Is that possible? Do you need Do you need credentials? To be honest,

we need a venture capitalist and we need like the most overleveraged real estate developer [laughter] that you've ever met and get them on the board and they would slash it to zero. But there's an important element.

No, no, no, not at all. There's an important element here though which is that like you know we know that Trump is not thrilled with Powell but Powell is good clearly at getting the votes on Sure.

And so it raises some interesting questions which let's say Trump were to uh appoint a real estate developer. He's like you know what I want like that 500 basis point cut right away. It's not a I mean let's let's do something less hyperbolic. Let's say, you know, let's say he appoints someone who wants a very aggressive sequence of cuts. That person has to win votes. That person has to win the credibility from the other FOMC members to get to make that decision happen. And so what it's saying already, there's already an significant number of dissents. It's not clear how much a POW replacement will have the credibility or the political standing within the FOMC to actually get that increasing pace of cuts. So, I know that Trump is not thrilled with Powell. Whatever. That's his prerogative. But another way to look at this is he has a man in uh the chair position right now that could deliver cuts period when it's not obvious that most of the members of the FOMC are thrilled with further easing. And yeah, it raises some question about even if there is going to be a more dovish Fed share come 2026, to the degree that he'll be able to like, you know, get those cuts through, it's not guaranteed.

Yeah. Can you can you help me like zoom out and and and understand the mindset of the of the Fed with regard to understanding that trade-off between unemployment and inflation? Because

sure

I I could understand it if I'm a politician and just personally it feels like inflation is something that everyone feels. Unemployment is something that

you either feel it or you don't right because you're either unemployed and if you're unemployed you are upset with the government. Uh and if you're employed you're like ah it's not great that my you know my brother doesn't have a job right now but at least I do. Whereas inflation everyone feels it. And so if I was purely in in politics mode, I could understand that trade-off, but how does the Fed think about that trade-off because it's a little bit different, right?

No, I mean, the way you described it is is absolutely perfect. And it's interesting, you know, look, like if you're just going back a few years to sort of the worst of the pandemic, you know, if you think back to like spring 2020, you know, people were think, oh, is this going to be another great financial crisis, right? Are we going to have another period of like terrible unemployment, etc. Now, it turned out that the uh job uh the labor market bounced back very quickly, almost much faster than almost anyone had anticipated. So, we might sit here and say, look, um you know what, we avoided uh you know, we avoided sustained 10% unemployment. We avoided another great financial crisis. But I don't think like most people really like think about their life in terms of counterfactuals. [laughter] And so to that like the main phenomenon of those times was significantly higher prices higher prices that at least for some time was uh were significantly outpacing wage growth etc. And so we know that was like incredibly popular. You know, I think the thing to think about is that one of the phenomenons that reoccurs over and over again in the economy is they talk about uh unemployment increases tends to increase in a nonlinear fashion by which you get these small increases. You go a little bit up every month you get a little bit increase in the unemployment rate and then suddenly it snowballs because it has the snowballing effect. I lose my job. I start spending less. the various stores and restaurants and services that I was consuming. They then have to cut uh workers because people are spending less at their establishments. So unemployment has this tendency to snowball to go from modest being modestly worsening to rapidly worsening. And once it rapidly worsens, then it's very hard to reverse that. Then you have to ease massively and it takes years potentially to get back to where you were. Yeah. So from the Fed's perspective, what they're thinking about right now is yes, inflation is too warm. It's not at our target. People don't like it, but it'll be really bad if we let employment snowball. And so the only way to avoid that is to sort of cut in advance to try to get ahead of it. And so that is that is the balance. And it's a very difficult balance. Uh obviously, and we know that very few people have like sort of called the cycle correctly. I mean, people have been predicting an imminent recession for a long time because you have all these signs. It's like, "Oh, are we right there? Is it is it all sort of one day away from falling apart?" And so, they're trying to thread this very difficult uh path here where they're aware of uh warm warm inflation, but they really don't want that sort of they want to get ahead of the uh employment collapse.

Yeah. Uh I want to know more about inflation. Sager and Jetty did OddLots. Everyone should go listen to that episode. uh just came out a week or two ago. Uh he's coming on our show on Friday. I know he's going to try and pin the inflation on the AI data centers. Is there anything to that? Uh have you seen any data that helps understand what's going on at a lower level within the inflation numbers? Because I mean I was at Target last week and I feel like they were selling TVs for like 40 bucks. And so stuff's still getting cheaper in certain segments, but then other things are getting more expensive. what's actually happening within inflation if you try and unpack it a little bit

I basically if something is made in China it's getting cheaper like that is like the phenomenon of the maybe the last 25 years which is that you can break down things that China makes and things that China doesn't make so China makes TVs the prices have collapsed does China make your child's daycare center no unfortunately doesn't so child care costs does China build your homes unfortunately not and so the price have gone Yeah, a good example.

So once the tea operated once the tea operated robots the humanoid robot is taking care of your kids and the tea operator is in China then it gets cheaper

cheaper but that is the phenomenon of our time. Look I think the data center story is very important there all kind you know I you guys I don't I assume you guys talked about it yesterday. I thought the the boom aerospace story was super interesting because all of these different aspects of the supply chain are being reproposed towards AI. It's like this is worth more

their their technology at least at this point might be worth more in a AI data center to make natural gas turbines than in a plane that might or might not exist.

The the the narrative over the last with uh over you know Crusoe and Cororeweave and so many of these neoclouds. I mean they started out as Bitcoin miners um and then and then the highest and best use switched and very quickly the these became AI factories. uh AI.

Yes. So what I think is there are a lot of resources that are being you know what this we could reallocate this better to AI and that means that there that creates an element of tightness in the supply chains certainly in key categories. I think by and large it would be hard at this point to actually draw a line however between what's happening in data centers to measured inflation and even electricity prices which would be the most direct one because we know electricity prices have gone up quite a bit. The link between electricity prices and data center buildout it's pretty tenuous at that point. It's not really enough to be meaningfully moving the dial. are other drivers of um higher electricity prices including just maintenance on the wires which has gone up for just sort of garden variety inflation uh reasons.

Yeah, I feel like the boom supersonic if boom did release a fleet of supersonic planes that should be deflationary to air travel in theory even though it's going to come in at the super high end. just having more planes is a supply and demand uh equation and you're going to see deflationary if they move over into focusing on AI and it pushes out their time. Of course, Blake at Boom is arguing that this actually accelerates their timeline because they can and I'm and I'm sympathetic to that argument, but but it was it was fascinating to see that like okay uh there were there are companies that I could see pivoting to AI. Boom was pretty low on the list for me.

Yeah. didn't think that the airplane startup was going to pick it AI, but it makes sense. I mean, right? Like if there's I mean, it's intuitive. I mean, this is one of the ironyies about sort of talking about inflation on on the big scale, which is that what do how do we get things more uh how do we get things cheaper? Well, we need more supply side capacity. We need more planes. We need more wires. We need more all this in the meantime. That all costs a lot of money and it absorbs a lot of resources, etc. So supply side expansion sounds really nice because that's ultimately how society moves forward and things become more affordable etc. However, to get there that is a resource inensive process and so it's not the kind of thing that like a none of that disinflation will happen tomorrow or the next week or the next year even and in the meantime it creates tightness

across the supply chain which is potentially inflation.

Yeah. I mean the the other thing anecdotally I know a number of companies that were just like oh we have tariffs now I'm going to pass this on to consumer the consumer and they just immediately raise prices and so that that factor is very real. How how is uh

how is uh uh Wall Street in general thinking about uh the tariffs just being deter uh determined to be unconstitutional. Yeah,

there feels like that.

Wait, do you mean the Nvidia 25% tax?

No, no, no, not talking about export tax.

Yeah, the risk that the Supreme Court um says the tariffs are null. You know what I think? Like

I think Wall Street would just love to not have any more headlines about tariffs cuz look, the stocks are stocks are basically at alltime highs even with the tariff announcement.

No more headlines. No more call them off.

Moratorium. it presumably if the Supreme

2% a day forever. That's all we want.

Yeah. Presumably if the Supreme Court strikes down these tariffs, the the assumption is that the administration will come up with new tariffs under some different rule. Like they'll come up with some different argument that's not national security related.

But then we have more tariff headlines. So it's like I think that in theory, yes, maybe it's better for stocks in the market if the Supreme Court strikes down the tariffs. In reality, I think people are like, "Oh, we just let them be. They have the stock market's at all-time highs, etc. The last thing we need to do is to find have yet another liberation day where Trump unveils a new reason to have tariffs under some other statute, some other technicality of the law." I think that's the last thing investors want to see right now.

Yeah. Yeah.

Uh how how much are you paying attention to the to the 10-year uh now in the near in the near term? It obviously dropped on the news and then it's just climbing climbing back up.

I think this is actually very important again thinking about who is uh when we think about the Fed in the future under any chair, right? Because what is the 10-year yield? The 10-year yield is the average overnight yield for the next 10 years. That's how to think about it. The Fed directly controls the overnight yield. But let's just say, okay, let's say the Fed cuts aggressively. Let's say we get that 200 basis point cut of people's dreams, etc. Well, intuitively that would be inflationary, right? You set off another boom, you set off the animal spirits again. Suddenly, you get more inflation and people are looking out, wow, there's going to be more inflation over the next 10 years. What does more inflation over the next 10 years equal? Well, it probably means rate hikes sometime down the road. So there is this tension where and so then the tenure goes up and so there is this tension where like cuts at the short end do not mechanically by any means do not mean lower rates at the long end and lower rates at the long end are what the juice where the juice is at. Lower rates at the long end are what affect mortgages and credit cards and corporate borrowing and all this stuff. So this is another thing that I think the next Fed share or and the administration has to think about which is that you could cut rates at the short end and not get any juice in terms of the actual lower rates from the parts of the uh the curve that actually affect the real economy. And so even cuts don't necessarily lead to the kind of monetary easing that you would like to see.

Last question from my side. We'll let you get back to nursing your hangover.

[laughter]

I love how you just assumed that Joe had like such a wild night.

I thought people I imagine there was a lot of people surfing going on.

I like that. I like to imagine people surfing on all the all the fan tenure. Um

uh do you read anything into consumer confidence from Black Friday? We we were covering it a lot like with our friends who run e-commerce stores and like there were a lot of good signals there, but it's hard because it's like one e-commerce store that we know and they're doing well. It's not like the broader economy

and it's a broader trend of Black Friday just moving online. It's hard to get

um you know it's hard to get a read. Um you know JP Morgan actually uh they presented at a conference yesterday. They said they're starting to see a little bit of cracks in the consumer. I I don't want I don't remember the exact term, but they did call out potential frailties there. So, that was very notable. It's so hard to get a read on confidence because for the last 5 years, we've been getting the most dis the surveys. We've been getting the most dismal consumer confidence measures in going back decades. You get people still like spend like crazy.

It's the vibe session thing a little bit. with the

Kylo and so it's so hard to get a read on confidence but by and large yeah there was that I think that you have to take that those comments from JP Morgan seriously because they have like you know they have a great read on they have just so much business everywhere that they could see into these things but by and large there isn't a ton of evidence yet that like oh there's a real deceleration happening in consumption.

Yeah. Yeah. No makes sense. Uh Jordan anything else?

No.

Thank you so much for coming on. Merry Christmas. Can we play some Christmas overnight? Overnight success music.

Play some Christmas music to let Joe go about his day.

Merry Christmas.

Merry Christmas. Have a good

see you weekend. We'll talk to you soon. Uh Turbo Puffer Serless Vector in full text search. Built from first principles on object storage. Fast, 10x cheaper, and extremely scalable.

The the air horn over the Christmas music is not something I've ever heard before.