The Outsider Perspective Issue 449 | The Beltway Outsiders

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Good Friday Morning! And a very happy morning to the weather in Venice, Italy, which decided that the night events of the Bezos-Sanchez wedding party was the perfect moment to split open the skies and drench everyone involved.

Lightening, intense downpours, and more forced “water taxis,” because this is Venice after all, to whisk everyone away. One Italian onlooker told The Daily Mail: “‘It just goes to show you can have all the money in the world but you cant control the weather – although an Italian saying says a wet bride is a happy and lucky bride.”

Although allegedly already married, Bezos had her sign a prenuptial agreement to protect his $244 billion fortune. Which means this wedding event has about as much depth and meaning as Iran firing its rockets at empty American military bases. In any event, I’m rooting for Venice’s weather.

This week, I’m going to take a deep dive into how Trump is pivoting his economic policy and what that means for inflation and fiscal policy moving forward – links to follow.

Quick Hits:

Salesforce CEO says AI is doing up to 50% of the company’s work. Marc Benioff said his company was seeing AI account for 30-50% of the company’s workload. And his firm had achieved 93% accuracy with AI across all those tasks. Bank of America estimates that 10% of all knowledge workers’ productivity will be taken over by AI by 2030, accounting for $1.9 trillion in wage savings. I’m not sure if we’ll achieve the “holy grail” of AI, which is when it reaches a true form of intelligence (AGI is the shorthand term). However, AI, as the ultimate pattern recognition machine, is changing everything.
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Where you can find me this week

Please subscribe, rate, and review The Horse Race on YouTube — the reviews help listeners, and readers like you find me. Make sure to sign up for the Conservative Institute’s daily newsletter and The American Almanac.

Trump Gives Iran It’s Final Offer – Conservative Institute

Trump Re-Establishes Peace Through Strength – Conservative Institute

The Old Democratic Party Is Dead – Conservative Institute

Trump Pivots On The Economy

At the start of the Trump administration, I believed they were planning to use tariffs in a way that would trigger a recession, blame Biden for it, and kill inflation. They also intended to refinance U.S. debt at lower rates and on longer bonds. The people in the White House had signaled that was the general plan, at least until markets started freaking out.

They’ve either given up on that plan, or everything they said was a lie. We’re headed in a different direction now. Scott Bessent, Treasury Secretary, in particular, is leading financial policy at the White House. And that’s for better or worse (and I’m leaning worse, every day).

Albert Marko had a summary of things this week on X/Twitter:

Bessent is pushing a high-stakes strategy to revive a faltering U.S. economy by reflating the rest of the world. His proposal: weaken the dollar, targeting a DXY level of 88, and use global momentum to pressure the Federal Reserve into cutting rates to 2%. The idea marks a shift in focus from domestic stimulus to international demand as a lever for easing monetary policy. Bessent’s approach reflects growing concern in Washington that the Fed is keeping rates too high for too long amid signs of economic strain at home.

He added later on while commenting on the next Fed chair: “Trump and Bessent want to print their way out of debt… Warsh doesn’t… Warsh is obviously right and Trump is being misled… He won’t be Fed Chair. Simple as that. Trump will get some puppet to lower rates and print dollars for years.”

Some of that may seem wonky or hard to read, so I’ll simplify: Trump is no longer focused on the debt or inflation. We’re pivoting back to the Obama/Biden monetary policy, where the Fed and Treasury pushed money printing as a means to stimulate the economy and, specifically, financial markets.

It’s Quantitative Easing by another name. Trump wants lower interest rates, and the Fed is bucking him on that (correctly, in my view). Inflation still isn’t solved, but the feeling is: “Who cares?”

I had been coming around to this view for the last few weeks. However, four stories this week reinforced that view. With Powell and the Fed refusing to lower interest rates, Trump has begun to circumvent the Fed and exert other influence.

First, Reuters reported that the Securities and Exchange Commission (SEC) announced talks to ease public company regulations regarding public filings. Without getting into the nitty-gritty, the SEC wants more privately held companies to list on U.S. markets.

They’re trying to reduce the cost, time, and regulations to encourage more companies to join Wall Street. We’re currently in a moment where companies are being held privately longer than ever before. They want more investment money to hit public markets.

Second, Trump is ordering Fannie Mae and Freddie Mac to start counting cryptocurrency holdings as a federal mortgage asset. Figuring out how regulators will do that and count it as an asset is a job I never want.

However, the result is simple, too: pushing crypto holders into the housing market to resuscitate a market that is lagging badly. It’s similar to when Congress eased regulations and made it easier for people to buy homes during the Bush administration.

Third, Treasury Secretary Scott Bessent is working on loosening regulations on Big Banks from the 2008 crisis. The short version is that he will no longer require the largest banks to hold as much in reserve in the event of a downturn.

What Bessent wants is for banks to take the capital they were forced to hold and turn around and buy U.S. Treasuries. He wants the Big Banks to buy up U.S. treasuries, increasing demand, to help drive down interest rates.

Banks would also be free to use some of this freed-up cash in other riskier investments.

Fourth, and finally, Trump is pushing for a new Fed Chair. The Journal reports, “In recent weeks, the president has toyed with the idea of selecting and announcing Powell’s replacement by September or October, according to people familiar with the matter. One of these people said the president’s ire toward Powell could prompt an even-earlier announcement sometime this summer.”

I don’t believe Trump will fire Powell. There’s no need to, and that’s a constitutionally more challenging proposition (though I do think Trump could prevail on that point).

In essence, a “shadow Fed chair” would undermine Powell’s efforts to maintain current rates. It would put pressure on him to lower rates, which is what Trump wants. Lower rates would boost the economy while he’s in negotiations with China and other countries.

To sum up the above four stories, Trump is seeking every form of economic boost he can trigger that can create similar conditions for easing interest rates without pulling that exact lever.

Why doesn’t Powell act? He believes inflation isn’t solved. And if he cuts rates now, by the amount Trump wants, it will bring inflation back. I wrote back when the Fed cut rates last year that this was likely the case. That cut was likely political to help Harris. It’s hard to see it any other way.

And while not cutting now can be viewed as a political move. It’s also true that inflation remains a persistent presence in the background. And it’s at levels above the 2% target the Federal Reserve wants, which suggests it wouldn’t take much for inflation to tick back up into the 3-4% annual range.

Trump’s team could counter that tariffs would reverse this inflation surge. And that certainly could be true. I’ve suggested as much, saying tariffs would be a drag on economic growth, which would counter any inflation.

But it’s impossible to know until you start seeing these things in action.

The final ingredient in this mix will be Trump’s “Big Beautiful Bill,“ which aims to encourage spending and boost the economy. Mix it all, and you get an economy that continues to limp along, much like it has for the last two years, while the stock market soars to new highs.

Is it fiscally responsible? Nope. But that ship has sailed. We’re punting that ball down the road. Again.

Links of the week

Democratic establishment melts down over Mamdani’s win in New York – Axios

Democrats fret about national fallout after Mamdani stuns in New York City – Associated Press

Classified Report That Suggested Iranian Nuclear Program Still Intact Likely Relied on Faulty Info From Iranian Sources, Former Intel Officers Say – Washington Free Beacon

Supreme Court rules against Planned Parenthood – SCOTUS Blog

Andrew Cuomo is staying in the NYC mayoral race despite primary loss – CNN

A New Paper Reveals Devastating Harms of Cross-Sex Hormones: Male use of estrogen is associated with a range of diseases and health complications. – City Journal

San Francisco bookstore stops selling J.K. Rowling titles due to ‘Harry Potter’ author’s anti-trans views – NBC News

Who Counts? Trump Poised To Try To Remove Noncitizens From Census – RealClearInvestigations

Transportation Secretary Duffy: We’re Not Going To Pay To Rebuild Cities The Left Lets Riots Destroy – RealClearPolitics

Pelosi raked in millions last year — and her portfolio out-performed every large hedge fund with stunning returns – NYPost