Cut the Rate - Not the Fed’s Credibility

Jose Alvarez, CFP®, MBA
Sep 10
4 min read

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That MarketWatch “open letter” telling Jerome Powell not to cut rates? It doesn’t land the way the author thinks it does. It's written well, makes an argument that I believe the writer believes, and makes a fair point about Fed independence. There's no doubt there. But then the article veers into a flawed, condescending take on those calling for a rate cut.

Let’s dig into both sides of this.

The Independence of the Fed Must Be Protected

And yes, Trump is undermining that.

I think we should all agree:

The Federal Reserve should never be an extension of the White House.

When President Trump openly, and nastily, attacks Powell, both personally and professionally, he's not just being critical, he's setting a dangerous precedent. The strength of our financial system depends on an independent central bank.

It’s one of the reasons:

The U.S. dollar is still the world’s reserve currency,
Inflation hasn’t run out of control (despite post-COVID volatility), and
Americans still have faith in the numbers they see in their retirement accounts.

If the Fed bends to political pressure now, what happens when this administration is over? Do we just swap in a new Fed Chair every time a new President wants their own economic agenda rubber-stamped?

That’s not monetary policy. That’s bullshit.

So yes, I agree with the author: protecting the Fed’s independence matters. But…

Where the Author Goes Completely Off Track

This is where it gets messy.

The writer claims people calling for rate cuts are showing “their own ignorance.” That’s not just wrong, it’s economically shallow.

Let’s clear up what the Fed actually controls:

The Fed sets the federal funds rate
- That’s the overnight interest rate banks charge each other.
It does not directly set
- Mortgage Rates
- 10-year Treasury Yields
- Corporate Bond Spreads
Those long-term rates are set by market forces
- Supply and Demand
- Inflation Expectation
- Investor Confidence in Economic Growth

In fact, markets have already priced in lower rates but not because Powell pulled a lever, because inflation is cooling, growth is slowing, and investors expect the Fed to act soon. That’s why mortgage rates, bond yields, and credit spreads have come down in recent months.

So when long-term borrowing costs fall despite no change in the fed funds rate, that’s not “the Fed cutting rates.” That’s the market anticipating rate cuts.

Here's a good metaphor explaining how the author's understanding is off target:

The Fed is holding the thermostat steady. The market saw cooler weather and opened the windows. The author is giving credit to the thermostat for the breeze.

Let’s Talk Inflation

Moving on from the "open letter," we’re fighting the wrong fight.

The Fed’s target inflation rate is 2.0%. A good, sensible target.

But let’s put things in perspective. I pulled inflation data going back to 1991 (that's the year I was born so no fancy reason, just personal relevance).

And you know what?

We’ve never hit 2.0%.

The historical average since 1991 is 2.65%.

Where are we year-to-date in 2025? 2.7%.

You read that right. We’re arguing over 0.05%. That's less than the rounding error on a gas station receipt.

Inflation isn’t a precise dial you turn. It’s a messy process driven by consumer behavior, supply chains, global energy markets, and more. The idea that Powell must see 2.00% on the dot before making a move is nonsense. It's dogmatic and dangerous.

The Labor Market Just Gave Us a Massive Wake-Up Call

Now that we've gotten these numbers, this is probably the most compelling reason.

The latest jobs data shows the U.S. lost 911,000 jobs over the 12 months ending in March 2025. That’s a massive downward revision from what we thought we knew. And this isn’t just a blip. It’s a flashing red sign that the labor market is weakening. If we wait for that to hit the unemployment rate, it'll be too late.

The Fed Is Waiting for... What, Exactly?

This isn’t strength. It’s stubbornness.

Powell’s defenders say he’s holding out to show the world that the Fed is “independent.”

But here’s the thing:

Delaying a rate cut just to make a point isn't independence.

It’s pride masquerading as policy.

It's politics covered up as diligence.

And if Jerome Powell continues to ignore softening job data, the cooling economy, and the fact that we’re sitting almost exactly at our 30-year average inflation rate, he’s not being prudent anymore... he’s letting his own politics get in the way.

That’s not strength. That’s weakness.

It’s Time to Cut

Though the argument can be made for a 50bp cut, I expect just a quarter point. The most important thing is to just start.

The Fed has signaled it might cut in September. Good.

They should.

A 25-basis-point move would acknowledge where we are economically, without overcommitting. It would show responsiveness without appearing reactive. It would help stabilize credit markets, boost business confidence, and avoid deeper damage to a labor market that is clearly starting to unravel.

This isn’t about “doing what Wall Street wants.” It’s about doing what’s right for where we are economically and not letting the last few basis points of inflation obsession derail a healthy economy.

Jose Alvarez, CFP^®, MBA

Founding Advisor

Harvest Horizon Wealth Strategies

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