Jobs, Jabs, and Jerome: What’s Really at Stake?

In this episode, we dive into President Trump’s escalating attacks on the Federal Reserve, exploring the implications for interest rates, employment data, and the credibility of U.S. institutions. Rareview Capital’s Neil Azous joins Andrew Wilkinson to unpack whether Powell, policy, and politics can coexist or if the Fed is facing a reckoning.

Summary – IBKR Podcasts Ep. 290

The following is a summary of a live audio recording and may contain errors in spelling or grammar. Although IBKR has edited for clarity no material changes have been made.

Andrew Wilkinson 

Welcome to another Interactive Brokers podcast. Today my guest will help us navigate the escalating attack by the Trump Administration on the Federal Reserve. I’m pleased to have back on the show Neil La Capital’s Chief Investment Officer. Welcome, Neil. How are you? 

Neil Azous 

Hey Andrew. Thanks for having me. Great to be here with you. I’m doing okay. 

Andrew Wilkinson 

Very good. It’s the middle of the summer and life keeps on going. 

Neil Azous 

Yes. 

Andrew Wilkinson 

So Neil, tell me, the attack on Fed chair Jerome Powell was initially about President Trump’s desire to see interest rates slashed, but due to a series of unfortunate events, it seems that the current narrative is more about reforming the Fed. What’s your big picture overview of the topic? 

Neil Azous 

Sure. So the Federal Reserve System is much more than a committee setting the overnight interest. If memory serves me right, there’s probably about 25,000 employees nationwide and they cover, or their duties include supervising and regulating banks, maintaining the stability of the financial system. They provide financial services to depository institutions, the US government, and the foreign official institutions as well. And then finally, they do research into the economy and they provide numerous publications on a regular basis. My view, Andrew, is like any other government body, there’s always scope for reform to make it more efficient. I could go through a list, and this isn’t conclusive, but let me just give you several examples. It would be great if there was more transparency to what they do. 

I personally think there are too many Fed speakers and too many communications each week that really don’t paint a coherent picture of what policy is like or what they’re doing to support the economy. Do we really need 12 districts and all the real estate that they have? Can the research that they produce, for example, be replaced with nowcast models? The point is that the Fed is bloated and steps should be taken to simplify it. How that gets done to me is an unknown, but it’s up to the administration. And like any of the other 400 agencies in the US that the government is reviewing currently, the Fed should be treated no differently. 

Andrew Wilkinson 

Let’s move on to another government agency and talk about the firing of the statistics head at the BLS. Trump’s telling everyone that the US economy is hot around the world, but the revisions to the labor market data—as it is, or maybe they don’t—it’s hard to deny that this is a political move. Or is there more to the story? 

Neil Azous 

Yeah, that’s fair. It’s also possible, Andrew, that there could be more to it than meets the eye. One of my favorite quotes—if you’ve ever read any of the research that we produce—I like to use this phrase “Certainty is the inability to imagine the alternative.” I say that, Andrew, because it’s possible—just possible, don’t shoot the messenger—that July actually pointed to a bottom in employment weakness, not a continuation. Now, to be clear, I’m not making that call. I’m just letting you know it’s possible that Fortune 500 companies are done with their staffing pullbacks now that there’s much less tariff uncertainty. That does not mean employment is about to inflect upwards, but it could mean that employment may be less bad than the recent data suggests. So, put another way, sentiment could be too bearish. Jobs could be over a hundred K of new job formation a month for the remainder of the year, or just enough to maintain that minimal growth trajectory and avoid a recession. 

Andrew Wilkinson 

What are the implications though, Neil, of appointing sympathetic FOMC governors and even someone with their hand on the keyboard at the stats office? 

Neil Azous 

Interesting. Okay, let me just address the Fed and the Bureau of Labor Statistics separately for a second. 

In the grand scheme of things, it appears President Trump wants the 10-year US interest rate down around 3%. The idea is that’s going to help businesses and unlock the housing market. The implications for that—meaning appointing FOMC governors that are sympathetic to that lower interest rate view—is very simple President Trump can run the economy hot. 

Regarding statistics, this is a little bit of a different discussion. I personally refuse to give any oxygen to the notion that someone at the Bureau of Labor Statistics could manufacture false data for political reasons. That would just be a breakdown in the trust of our institutions and the rule of law. I don’t subscribe to that view and don’t really want to go down that road. I think this is a better way to put it, Andrew The fact is this—the BLS is antiquated and archaic, and it’s a poor conduit to help set monetary policy in today’s world. That’s important to recognize because that monetary policy, driven potentially by those statistics, has knock-on effects to the broader economy and financial markets. 

It relies too much on paper pushers who take surveys of businesses to judge the number of jobs in the economy. It shouldn’t be the case. Technology is available. We have data science and system software that can provide an accurate reading of the economy. 

There’s no longer an argument for the BLS to employ hundreds of people to make phone calls and manually record those results. So personally, don’t be surprised if the administration removes any human element involved and starts to rely on hard data collection, machine learning, AI, etc. Said differently, Andrew, these days of these phone surveys are over—and that’s okay. It’s going to reduce the margin of error and the amount of revisions we see when that data is released. And when that happens, there won’t be any conjecture about the data being manipulated for political reasons. 

Andrew Wilkinson 

All that said, Neil, has your view on the outlook for monetary policy changed for the remainder of this year and maybe into the beginning of next? 

Neil Azous 

Not really, Andrew. My view is increasingly a dovish outlook as President Trump continues to implement his agenda and basically just step over anyone in his way. This could take the form of an announcement of a new Fed chair, i.e., a shadow Fed. It could be the attempted firing of the existing chairman, or whatever he can get his legal team to be able to defend. We just keep an open mind regarding his ability to try to move things forward. 

On the interest rate front more specifically, we would not be surprised if the Fed cut by a full 1% by year-end. There are three FOMC meetings left in 2025. Why not a sequence of 50, 25, and 25 basis point cuts at those last three? 

In the bigger picture, Andrew—and this I think will be a growing topic—once President Trump wrestles the Fed to where he wants it, there’s just going to be a lot less emphasis on monetary policy in the day-to-day financial markets. Fiscal policy, which has really been the dominant force the last couple of years, is going to be the driving force going forward. 

Andrew Wilkinson 

My guest is Neil Azous, CIO and founder at Rareview Capital. Huge thanks for joining me again today, Neil. 

Neil Azous 

My pleasure, Andrew. Thank you for having me. 

Andrew Wilkinson 

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