Episode summary
FOMC Live Reaction: Is The Fed Making A Policy Error? | Axel Merk
Thoughtful Money
· · Hosts: Wolf Richter, Adam · Guests: Axel Merk
Summary
Axel Merk argued that the Fed’s latest statement and press conference were more informative than many traders thought, even though the policy rate was left unchanged and there were two dissents. He disliked the wording changes in the statement, especially the switch from “solid” to “strong,” but said the real signal was Kevin Warsh’s insistence on tighter, not yet tight, financial conditions and on keeping a tightening bias alive rather than rushing into a larger move.
Merk said Warsh is trying to build a clearer framework for Fed communication: less improvisation, more process, and more reliance on how markets respond to a publicly stated policy bias. He tied that to Warsh’s remarks about productivity, infrastructure spending, and a November 16 productivity conference where Warsh will speak, suggesting the Fed chair is preparing a more substantive policy speech on how productivity should affect the Fed’s thinking.
Merk also argued that Fed independence is less about presidential tweets than about the Fed staying out of fiscal policy and sector-specific credit allocation. On inflation, oil, and growth, he said the Fed wants to prevent excess demand from feeding supply shocks, but should not overreact. He also connected the discussion to fiscal irresponsibility, rising borrowing costs, and the risk that the next recession will expose how dependent policymakers have become on the Fed.
Key takeaways
- Axel Merk said Warsh’s message was not dovish: “conditions are tighter, but they are not tight,” which Merk read as leaving the door open to another hike.
- Merk criticized the Fed statement for unnecessary wording changes, saying “strong” versus “solid” adds noise rather than clarity.
- Merk said Warsh is trying to create a clearer framework so markets can anticipate Fed reactions instead of relying on vague discretionary signaling.
- Merk argued Fed independence means staying out of fiscal policy and credit allocation, not simply ignoring presidential criticism.
- Merk sees fiscal irresponsibility as a bigger structural risk than short-term Fed communications, especially if the next recession hits with deficits still elevated.
Notable quotes
“the statement is short and they changed a few words”
“conditions are tighter, but they are not tight”
“Fed independence is not about a presidential tweet”
“Monetary policy is about money supply, interest rates, the amount of credit in the economy”
“You want to change the institution within the confines of the existing law”
How the episode opens
And we should be live. Welcome to Thoughtful Money. I'm Thoughtful Money founder and your host, Adam Tagert. Welcome you here for our usual special report that we do after every FOMC release and uh Fed Chair Presser. I am joined as always by Fed Watcher and um uh CEO and founder of MC Investments that of course everybody is Axel MK. Axel, how you doing? Great to join you for this very nerdy session.
Very nerdy session. All right. Well, I'm glad you're giving everybody a an early heads up on this.
Um yeah, I was watching uh Kevin Worsh's um press conference live and you were live tweeting it, Axel. And uh a lot of the things that he was saying I was thinking Axel's really going to like this. So I know we got a lot to talk about here.
The the reason the reason I I live tweet and the reason I started tweeting to begin with not sure I think it was 2008 or that around is because that's how I keep notes right I can scribble it the downside is I can't read my own handwriting moment after I wrote it and I might as well share it because I get feedback if I get something wrong people say no you idiot you can't do it right this is wrong and so for me this is my way of processing to just share it out and anybody that follows me should be aware that when there is a central bank meeting, I stop tweeting. Yes.
Well, uh there's a lot of people that are very interested in what you had to scribble down there. Um I do just want to remind folks for those that that aren't familiar, um Axel has had an advisor on his board for 20 years more.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- fomc policy error
- fed hawkish stance
- interest rate outlook
- inflation persistence
- oil and bond price moves
Companies and tickers mentioned
- Thoughtful Money LLC
Watch the episode
Watch “FOMC Live Reaction: Is The Fed Making A Policy Error? | Axel Merk” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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