The drama at the Fed is that President Trump on Wednesday called for FOMC member Lisa Cook to resign over accusations of mortgage fraud leveled at her by Federal Housing Finance Agency Director Bill Pulte. Specifically, Pulte urged the Department of Justice to launch a criminal investigation related to Cook’s mortgage records. Trump on Truth Social said that Cook “must resign, now!!!”
Since the Fed oversees the banking industry, it looks bad if a Fed official actually lied on her mortgage application to get a more favorable interest rate by misrepresenting her residency. Cook said in an e-mail that “I have no intention of being bullied to step down from my position because of some questions raised in a tweet.” This accusation is the same as the Trump Administration is asserting against Senator Adam Schiff, who now has a legal defense fund.
Meanwhile, the Fed released the July on Wednesday. The minutes said, “Several participants emphasized that inflation had exceeded 2% for an extended period and that this experience increased the risk of longer-term inflation expectations becoming unanchored in the event of drawn-out effects of higher tariffs on inflation.” The labor market deterioration that Governor Christopher Waller thoroughly explained on Bloomberg before the big Labor Department downward revisions was not discussed in the FOMC minutes, so that was disappointing.
Fortunately, Waller now has more followers within the FOMC, so a key interest rate cut should be forthcoming at the September FOMC meeting. I should add that on Thursday rose to a two-month high of 335,000, so the is expected to rise and coax the Fed to cut key .
The National Association of Home Builders announced on Thursday that rose 2% in July to an annual pace of 4.01 million. This was a big surprise, since economists were expecting a 0.5% decline. In the past 12 months, median home prices have only risen 0.2% to $422,400, so at least housing inflation is cooling off.
I do not like August since there are “air pockets.” We are now in the midst of a big mean reversion rotation, which is unfortunate because the earnings environment has been stunning. Ed Yardeni pointed out that with 92% of the reporting earnings, second-quarter earnings have risen an average of 10.6%. However, the most amazing statistic is that the average earnings surprise was a whopping 8.8%, which is the strongest earnings surprise ever recorded in the 39 years that Yardeni has been observing quarterly earnings results.