Powell And The Fed Has GIVEN UP On 2% Inflation Target

0:00Hello, everyone. We've got a lot of questions to get answered today. Did the Federal Reserve abandon their 2 % inflation target on Friday? Is the AI boom just a gigantic bubble ready to pop? And what is Jeff Bezos' big idea on how to measure a CEO's success? All that and more today. We're live from the desk of Anthony Pompliano.

0:27Before we get into today's show, I need your help. We have 19 ,632 subscribers on YouTube, and I need you to hit the subscribe button right now. Every person counts on our march to my goal of 1 million subscribers. Hit it. Let's get into today's show. All right, ladies and gentlemen, we had a good old-fashioned internet debate on our hands after Jerome Powell's press conference on Friday. The drama started with a summary of the Fed's position from Bloomberg, mainstream media. The article read, Powell said the Fed has adopted a new framework that removes a reference to the central bank seeking inflation that averages 2 % over time and one to it making decisions on employment based on shortfalls from its maximum level.

1:06So first of all, that sentence is a mouthful. It takes an Einstein level genius to understand what's being said, right? Well, not really. You can just read the words and believe them. But it seems that many people had a hard time doing that though. This is where the big controversy comes in. Each Twitter or X account that shared the summary from Bloomberg was immediately met by a smattering of nerds who claimed that the summary was wrong. Now, why would they say that? They were saying that the Fed wasn't abandoning the 2 % inflation target that has been the bedrock of monetary policy for the last few decades.

1:37But the detractors seemed to be just lost in the sauce. They were completely denying reality. Bloomberg tracks word for word every change to various Fed policies and statements to track changes. In those track changes, you can see the Fed removing the sentence that says, the committee seeks to achieve inflation that averages 2 % over time. And they replaced that sentence with a sentence that says, the committee is prepared to act forcefully to ensure that long-term inflation expectations remain well anchored. 2%, gone, milch, taken out. So as the famous phrase goes, who are you going to believe, me or your own eyes?

2:12If people don't want to acknowledge reality when presented with the source material of changes, then no one is going to be able to help them. It doesn't change the fact that the Federal Reserve, the Central Bank of the United States of America, has finally waved the white flag on Friday. We know that the Fed has previously given up on the 2 % target in practice. They haven't seen inflation at 2 % since February of 2021. That is more than 50 months without the Fed achieving their goal of 2 % inflation. Now, I'll put goal in air quotes. That is such a long time that it is obvious they aren't even trying anymore, regardless of what they kept saying at the press conference.

2:48But now we are seeing the Fed actually say something different too. It's not just action. They're changing their words. Ben Hunt, who everyone knows is someone I've long disagreed with about Bitcoin, explained it well when he wrote the following. We've reverted to 2 % inflation as a long-term aspirational goal rather than a definitive target to be achieved in this cycle. This is a profoundly dovish shift by Powell. And if you don't understand that, you will continue to get ripped by this market. For the past three years, Powell has said that 2 % inflation was not aspirational. It was not something to get close to, but it was something to actually achieve.

3:24That language is now gone. We will not see 2 % in this cycle. I agree. So to be honest, this development from the Fed is not surprising. Asset prices are at all-time highs and the central bank's about to cut interest rates. What do you think is going to happen? Are politicians also continue to print money and drive the national debt higher? What do you think is going to be the impact on inflation? So here's the dirty secret. The Federal Reserve knows that they have a 0 % chance of getting inflation back down to their 2 % target, especially when it is measured by the Bureau of Labor Statistics.

3:53A combination of bad input data and inaccurate calculation methodologies means the CPI metric is operating in an anti-gravity environment. It doesn't matter that Truflation is showing their real-time alternative metric that's hovering around 2 % for the last few weeks. Frankly, the Fed isn't smart enough to simply just point at the alternative metric and claim victory. They should do that, but they're not going to. They are too focused on the government data, which is now essentially guaranteed to go higher as we get the September rate cuts. Ben Hunt goes on to highlight exactly why the language change is so important.

4:25He says that Powell has been asked a bazillion times over the past three years if getting close to 2 % was enough, and he has always said no. Now he's saying yes, it's a big change. You may think that that's just being realistic, but it is also a very dovish shift. So that's it, folks. The prudent central bank game is over. We are about to enter back into the fun zone. Rate cuts are coming. Cheap capital is going to flood the market and asset prices are going much higher. And the best part is that the bears will be weeping from the sidelines as they continue predicting the 17th or 18th recession this year.

4:59Jerome Powell and the Fed governors have made a decision. Their 2 % target ain't happening and they're going to bend the knee to the public pressure. Sure, the central bank's going to blame the labor market and they're going to claim to have cut rates because they're so worried about a weakening outlook. Maybe it's true, maybe it's not. I thought Jordy Visser put it well this weekend when he told me that the Fed cares more about the labor market weakening than inflation running hot. Simply the labor market over inflation now. And this is the new framework, which in a way is the same as the old framework.

5:28So take a listen to how Jordy explained it to me. I think the most important thing about this, Anthony, obviously, from my perspective, that statement about the jobs market has weakened, And inflation is still on that side. Regardless of whether they're admitting it, they're leaning towards the fact of the jobs market is more important than the inflation side at this point. And for me, with PMIs rising, all of the prices paid side rising, they will be easing into a situation where PMIs are going up. Now we still have another CPI report and we have another jobs report. One thing that we haven't talked about on September 9th, I believe it is, there will be benchmark revisions for labor.

6:14And the estimates I've seen are anywhere from 500 ,000 to 900 ,000 job losses that will be added to what had happened between into March of 25. Which, again, I think they're just leaning on the dual mandate towards the side of the jobs market. And it's a big deal for stocks. It's a big deal for crypto. Now, Jordy's perspective makes sense to me. Powell made things very clear in his speech. All you have to do is listen to his words. It's what I did, turned on my ears, and I just listened. And now you can realize that the Fed isn't removing specific language from their policies and speeches by accident.

6:49They comb over this stuff with a magnifying glass. So, ladies and gentlemen, start your engines. The U.S. economy is about to run hot, and investors are going to do very, very well. I keep getting asked whether we're in an AI bubble or things that have gone up a lot about to go down a lot. Well, I thought that David Sachs recently on the All In podcast had a great tirade all about what's happening with artificial intelligence and how you should think about whether it's a bubble or not. Take a listen. Let me tell you why I think that this correction is actually healthy. You got this rapid takeoff narrative that basically the leading AI models would be able to turn their intelligence towards improving themselves, towards recursive self-improvement.

7:30And therefore, within a couple of years, the leading models would basically achieve super intelligence and leave everyone else in the dust and then capture all the value of humanity. You got, I think, a huge backlash, which has already been forming where you have a thousand bills running through state legislatures right now. and you have all this AI safety legislation. You got bills like in California, the SB 1047, which would have applied a tremendous amount of new regulation to AI. And it was all based on these fantastical and kind of magic views of what AI was gonna do in just the next two to three years.

8:04And I think that the reason why this recent skepticism is healthy is because I think it's rebutting all of that. And it's showing that AI is a powerful tool. I mean, I definitely think it's a new and important form of computing, and it is going to unlock tremendous value in the economy. But it's going to take us a while to get there. I mean, you can't just tell the AI, you know, be a sales rep, be a customer service rep, and kind of throw it over the wall and expect that it's going to replace a human. It takes a lot of prompting and iteration and validation to make the AI work, to make it generate business value.

8:41and if we were on a path towards rapid takeoff then what you would see is that the leading ai models would be increasing the distance between like the top one or two models would be increasing the distance between you know the rest of the models and instead what we're seeing is a clustering of model performance around the same performance benchmarks right they're incrementally the progress has to be a little bit more incremental it's more evolutionary rather than revolutionary and i i I think this really crystallized around the launch of ChatGPT5, where a lot of people were expecting GPT5 to be this huge breakthrough.

9:18Sam Altman was sort of teasing this concept by posting photos of the Death Star, the idea that this model was going to blow everybody else away. And the reviews ended up being very mixed. And then we saw that on the performance evaluations. It's not that the model didn't represent progress. It just fell short of these lofty expectations that have been created. The reason why I like David's comments here is because yes, AI has a lot of promise and there has been a lot of progress and we are still progressing, which is a key part. It's really hard to have a bubble if the actual substance underlying the asset prices isn't getting better, but we're still seeing improvement.

9:52Now there's still a lot of work to do. Doesn't mean that all of a sudden you can simply just take this AI. It's going to run your whole company. In fact, we use AI every single day in all of our companies. And I'll tell you what I've seen. We're not replacing people with artificial intelligence. Instead, what we're doing is we're giving our people artificial intelligence. It's making them more productive, it's saving them time, and frankly, it's making the entire business more efficient. That means that the business is actually starting to get more productivity and more profit per unit of effort from our employees.

10:23That means that the business is more valuable and you would expect the valuation to go up over time. That's what we're seeing in the public market, that's what I'm seeing in the private market, And that's what I expect to continue to see for some time moving forward. So yes, valuations are going up, but I think a lot of it is actually tied to reality. Think about Facebook. They're growing revenue, net profit, 20, 30 % year over year. This is a company that is driving billions and billions and billions of dollars every quarter, but still they are growing at double digit percentage year over year.

10:56You only get that if artificial intelligence is actually working. And so if a company of that size and scale can grow that fast, well, how much is it worth? It's probably worth more at that speed than it was when it was growing slower just a couple of years ago. So ultimately what we are seeing is not a bubble in my opinion. Is there a lot of capital coming in? Of course. Is artificial intelligence gonna be really valuable for the future? Of course. Are some companies not gonna make it? Duh. But most of the companies that you are seeing start to use this technology. They're all reporting the same thing.

11:26We're making more money with less effort and less employees. That tells me that AI is real and that the artificial intelligence boom is something that people are likely underestimating rather than overestimating. I always like when really wealthy people are asked about the Forbes 400 list or how they think about the comparison between how much they have versus other people. Jeff Bezos, a couple months ago, was asked at the DealBook Summit by Andrew Ross Sorkin to opine on this exact idea. And I thought Bezos' answer was incredible. And I saw this clip recently go viral and I wanted to share it with you.

12:00I sometimes wish that there were a, and maybe you can do this, Andrew, or maybe the Washington Post will do this, but somebody needs to make a list where they rank people by how much wealth they've created for other people. And so instead of the Forbes list, it ranks you by your own wealth. So, you know, Amazon's market cap is$2.3 trillion today. I own about, you know,$200 billion-ish of it. So if you take$2.3 billion and subtract out the piece I kept from myself, then, you know, I've created something like$2.1 trillion of wealth for other people. That should put me pretty high on some kind of list.

12:47And that's a better list. You know, how much wealth have you created for other people? You know, people like Jensen and NVIDIA, he's going to be very high on that list. And that would be a pretty cool list. Somebody should do that list. I think that is a very cool list. Now, the reason why I think this is such a good idea is because ultimately people who create wealth, they do it by solving problems in society. We should celebrate that. Rather than call people entrepreneurs, imagine if we call them problem solvers, because that's really what they are. If you solve problems at scale for a lot of people, then you can create enormous economic wealth for yourself and your family.

13:25And that's what people like Elon Musk, Jeff Bezos, Mark Zuckerberg, and many others have done. So plenty of people now, it's cool to hate capitalism, but if all of a sudden we stopped calling them entrepreneurs or business executives or CEOs, and instead we simply call them problem solvers, the whole society would look at things much differently. Bezos wants to measure people based on how much wealth they've created for others. I think that's a great idea. That's it for today's show. Remember, we have 19 ,632 subscribers on YouTube. I need your help to get to our goal of 1 million subscribers.

13:58Make sure you hit that subscribe button and I will see you guys live tomorrow from the desk of Anthony Pompliano.