The Breakdown - Powell's Hawkish Wait-and-See

Episode Date: August 1, 2025

The July FOMC meeting delivered no rate change—but plenty of political drama. Powell refused to guide toward September cuts, triggering hawkish market reactions and rare dissent from Fed governors Waller and Bowman. Meanwhile, the White House unveiled a sweeping crypto policy roadmap during Powell's press conference, signaling a new era of fiscal dominance and shifting central bank relevance. NLW breaks it all down—from Powell’s quiet rebellion to the Fed’s waning independence and the rise of crypto on the policy stage. Brought to you by: Grayscale offers more than 20 different crypto investment products. Explore the full suite at grayscale.com. Invest in your share of the future. Investing involves risk and possible loss of principal. To learn more, visit ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Grayscale.com⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ -- ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://www.grayscale.com//?utm_source=blockworks&utm_medium=paid-other&utm_campaign=brand&utm_id=&utm_term=&utm_content=audio-thebreakdown)⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/@TheBreakdownBW Subscribe to the newsletter: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://blockworks.co/newsletter/thebreakdown⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownBW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Thursday, July 31st, and today we are talking about Fed Day. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link of the show notes or go to bit.ly slash breakdown pod. All right, friends, Fed Day has been, if we are being on us a little bit of a quiet occasion so far this year. The FOMC has been on hold for each of the four meetings adopting a wait and see approach to navigating the new administration's economic policy.

This week's decision was just as boring. Rates remained unchanged at 4.5 percent, and the explanation was still uncertainty around tariff inflation and economic conditions. But everything surrounding the decision was packed with drama, as Powell took a stand against the administration, the market, and even his own board of governors. Of course, the drama around this FOMC meeting got started early, when the president stopped in at the Fed building to scrutinize multi-billion dollar renovations. Trump has been grilling Powell and the Fed for months in the press, but it was an entirely different thing for it to be happening face to face.

The image of the president standing over the Fed chair and questioning the renovation budget was a stark reminder that Central Bank independence can't be taken for granted. It was also some of the absolute best meme template fodder we've had in a very long time. Now, Powell held his own saying that Trump's numbers were incorrect, but that memeable image was absolutely etched on the minds of traders heading into the meeting. While the markets didn't like the look of the squabbling between the administration and the Fed, they had a very simple wish for this week's press conference. Rate cuts were completely off the table for June, but at around 50-50 for September. Many analysts and traders were looking Powell to ratify that cuts were on the

table for September, but he refused to do so. It wasn't even so much about wanting rate cuts to juice stock markets, they were looking for an assurance that the Fed is paying attention to the signs of weakness that seemed to be lurking beneath the headline economic data. Powell gave those folks absolutely nothing. This was the first of Powell's wait-and-see press conferences that was interpreted as hawkish, with the two-year treasury rate climbing as he spoke. The first question asked directly if a cut in September was now off the table. Powell responded, it seems to me and to almost the whole committee that the economy is not performing as though restrictive policy is holding it back inappropriately. Modestly restricted

policy seems appropriate. After the reporter tried again for a straight answer that said the thing without needing to mealy-mouthed it a hundred different ways, Powell said the committee will look at the data in the next six weeks, and that, quote, we have made no decisions about September. That reference to almost the whole committee being on board belied and not so quiet revolt among the Fed governors. This meeting saw two dissents from Fed governors Waller and Bowman with each voting to cut at this meeting. Powell has been famously attempting to avoid dissents as he guided the Fed through the difficult decisions of the last few years. The last FOMC meeting with more than one dissent was in September of 2020. Two regional Fed presidents quibbled over language surrounding the newly announced strategy of average

inflation targeting. And to put some context around this, a pair of Fed governors haven't gone against the opinion of the Fed chair since 1993. That meeting was Alan Greenspan's call to keep rates steady despite rising growth. He believed inflation would not follow due to a productivity boom. That view was ultimately vindicated in Greenspan's decision not to preemptively fight inflation helped the U.S. economy boom in the mid-90s. That meeting shifted governor dissents from being a common thing to extremely rare. Greenspan only saw a handful of dissents over the next decade while he remained chairman, and Bernanke and Yellen saw zero dissents from Fed governors as the committee formed a united front

to deal with the financial crisis in its long shadow. This is only the second meeting where Powell has seen a governor dissent, with Bowman disagreeing that a double cut was necessary last September. Now, the cynical read here is obviously that Bowman and Waller are auditioning for the role of Trump's next Fed share by voting for a rate cut. Both Republican governors flagged this preference in public statements earlier in the month, but it's a big difference to actually cast a descending boat. Powell didn't seem to see a big problem with the dissents, stating, what you want from everyone is a clear explanation. This was quite a good meeting all around the table. People thought carefully about this and

put their positions out there. Now, unpacking why Powell isn't guiding a rate cut for September, the main issue remains tariffs. The June CPI report showed some evidence of tariff inflation showing up in goods, but we don't know how serious or how long-lasting the impact will be. Powell commented that it's still quite early days. So far, he believes that retailers are eating the tariffs but intend to pass on price increases to the consumer later in the year. However, he pointed out that they may not be able to. His big point was that it's too early to tell and could take several months for the Fed to be confident that tariff inflation is transitory. When asked why the Fed is reticent to look through goods inflation and get to a rate cut,

Powell fired back, you could argue we are looking through goods inflation by not raising rates. On the labor market, Powell's view was that there are no signs of a weakening labor market in the data. He took the view that there's been a slowing of job creation alongside a slowing of labor supply, possibly due to the crackdown on migration. Powell said, you've got a labor market that's in balance, albeit partially because both demand and supply for workers is coming down at the same pace. That's why the unemployment rate has remained roughly stable. He emphasized the unemployment rate is the, quote, main number you have to look at now,

but acknowledged that there are downside risks in the labor market. Now, this is an interesting stance for Powell to take. Over the past few years, he's been willing to look at other numbers like job openings to ground his view on the state of the labor market, but now he's resetting to focus on the unemployment rate, which many believe misses the phenomenon of people losing stable jobs and turning to gig work to survive. Today's episode of The Breakdown is brought to you exclusively by Grayscale. Grayscale is almost certainly a name you know. They've been offering exposure to crypto for over a decade now and offer over 20 different crypto investment products ranging from single assets, to diversify, to thematic exposure to crypto and the broader crypto industry. They have long been innovators at the intersection of tradfi and crypto, and one of the benefits for a lot of us is that Grayscale products are available right through your existing

brokerage or IRA. Now, of course, investing involves risk, including possible loss of principle. For more information and important disclosures, visitgrayscale.com. Go to Grayscale.com to explore their full suite of crypto investment products and invest in your share of the future. One of the interesting points was that Powell feels he's lost the roadmap for where the neutral rate is. The neutral rate, or R-star, is the concept of a Fed funds rate that is neither supportive or restrictive on the economy. Powell's belief is that rates are slightly restrictive at the moment, but he acknowledged, quote, I don't think we have a preset course. We understand that no one

actually knows what the neutral rate is. We know it by its works. So while the Fed is still in wait and C mode, the balance of risks seem to have shifted to the hawkish side. The labor market has some downside risks, but they haven't materialized. Meanwhile, inflation is ticking up and the Fed is evaluating whether they need to fight it or not. By punting on this opportunity to give forward guidance for September, Powell is giving the signal that nothing is set in stone this year. This wasn't about waiting another meeting to confirm the rate cuts are appropriate. It's about waiting to figure out what the next move should actually be. It would be going too far to say that rate hikes are back on the table based on this press conference, but Powell introduced a lot

of hawkish uncertainty. It's now entirely unclear that we'll get any rate cuts at all this year. Believe it or not, Jim Kramer actually had a pretty good read on the situation, telling his audience, in short, the backdrop's just too darn mixed for the Fed to take action. That's also why Powell pretty much punted on that forecast, because who knows what the heck the future is going to like, certainly not the Federal Reserve, which is why they're so reluctant to make a move until they know more. Former Fed Governor Richard Clarita said that data continuing in the same pattern, quote, could make it very tough if it's not bad enough to make it a slam dunk to cut and it's not good enough to declare victory. As a result, it's more plausible than some folks think that Jay could just

sit on his hands. Now, checking in on the administration's open conflict with the Fed, National Economic Council Director Kevin Hassett told CNBC, we at the White House 100% respect their independence, but we also like to respect their analysis. Now, respect is perhaps not the word I'd use for the White House's view of Fed independence, but it's notable that Hassett was a little restrained given he's also auditioning for Powell's seat. He added, we expect that the Fed will catch up to the data soon. That's going to be a really big positive story. Bill Pulte, the director of federal housing, is still calling for Powell to be fired, but the president seems to have moved on for now. Although we have absolutely no guidance on

what to expect, we do have a lot of data before the September meeting. We'll get two sets of payroll and inflation data before then, and with more tariff deals now in place, we'll probably have a more solid picture about the inflationary impacts as well. We also have the Jackson Hole Central Banking Symposium next month. The Fed traditionally uses the event to take stock in the big picture of monetary policy and sets a course for the next year. During his tenure, Powell has used the event to deliver both long-term and short-term guidance. This year's event, though, seems set up to be a bit of a nothing burger. With the Fed on hold and data indeterminate, it's hard to see what Powell can actually say about the year to come. Realistically, the big takeaway from this meeting is that

the central banking era of the last 30 years looks like it's coming to a close. A pair of dissents on the board demonstrates the Greenspan image of the Fed chair as an all-knowing technocrat is done. Rate policy is moving on from the ZERP era with real decisions and trade-offs. But mostly, fiscal dominance and an increasingly political climate is undermining Fed independence. The FOMC's decisions are likely to be far less important than tariffs, deficits, and treasury policy for the immediate future. Instead of buckling and guiding a cut in December, Powell decided to take a stand, even though it's of relatively little consequence. Austrian economist George Selden tweeted, usually the correct FOMC rate setting is the one it considers necessary for meeting its macroeconomic

targets. This time, for all we know, it may have been the one it considered necessary for telling the president to go fly a kite. Seeming to underscore that the Fed's power over the economy is waning, the White House scheduled a major crypto event at the same time as Powell's press conference. The administration revealed their crypto regulation roadmap, a 166-page report from the crypto working group laying out comprehensive policy recommendations. A White House fact sheet said, by implementing these recommendations, policymakers can ensure that the United States leads the blockchain revolution and ushers in the golden age of crypto. The document is the culmination of months of work across numerous government departments. It pulls together the very

various reports commissioned by the crypto executive order that was signed in January. The policy recommendations were spread across five broad topics, market structure, banking, stable coins countering illicit finance, and taxation. The market structure section was nothing new, but it reinforced support for the proposed legislation and clear regulations under existing powers. In the banking section, the report stated, banking regulators should never again pursue the Biden administration's policies of Operation Showpoint 2.0 and should instead embrace the opportunities digital assets and blockchain technologies offer to banks nationwide. The stable coin section was largely about getting the framework that was laid out in the Genius

Act up and running as fast as possible. It also painted clear opposition to CBDCs. The section on countering illicit finance was interesting in that it called for major reforms to the Bank Secrecy Act. A concept is a new category of crypto-native institutions that are subject to anti-money laundering compliance. That would include figuring out which parts of the DeFi ecosystem should have KYC-AML obligations and how those requirements should operate. Coin Center Director Peter Van Valkenberg wrote that this was, quote, not bad policy per se, but it could open the door for bad policymaking and privacy intrusions if we're not careful in how these new categories are defined. He argued that simply codifying the

2019 FinCin guidance would be preferable, marking non-custodial services is clearly outside of scope. Zooming out, the major point is that for the first time we have a comprehensive and positive policy document from the U.S. government. And while that's unambiguously positive, many focused on what wasn't there. The report featured no discussion of the strategic Bitcoin Reserve. When White House Crypto Advisor Bo Heins was questioned about it, he said, This actually requires some labor to get this set up properly. You have to build the infrastructure, you have to make sure that you're crossing your T's and dotting your eyes to get this done the right way and have long-term success with it. He said the government would continue working towards it and

that, quote, people will be very pleased with the direction we go in. When asked how much Bitcoin the government owns right now, he dodged the question. Honestly, there's a low-key freak out on CT over the lack of an announcement, but the more sober and obvious take was represented by Dan Tapiero of 50T who wrote, mind-boggling. No one in the space could have anticipated this even two years ago. really time to rock for the digital asset ecosystem. If you aren't involved, you're falling behind. The sky is the limit. Interesting stuff, we will definitely explore more of that on the Friday 5 tomorrow with Scott Melker.

For now that, that is going to do it for today's breakdown. Appreciate you listening as always, and until next time, be safe and take care of each other. Peace.