Jerome Powell and the Cheesecake Factory

September 19, 2023

Have you ever had to make a decision that you knew no matter what you chose, it wouldn’t turn out well? I do it all the time. Do I bypass the cheesecake or not. If I bypass my cheesecake, the endless depression, guilt of thinking that the poor slice may go without filling its destiny of ending up in my belly, and the sugary aftereffects of not rotting my enamel are tough to bear. If I don’t bypass the cheesecake, then it’s another 3 hours at the gym, or going to the tailor to let my pants out another inch. It’s a quandary.

This week, Jerome Powell, Chairman of the Federal Reserve must make the cheesecake choice. Does he raise rates, or not? In a nutshell, it’s a choice between continuing inflation, and a good chance of a recession.

Before you tell me that inflation is under control based upon the latest “official” numbers, if you take out food and energy costs from the equation, then yes, inflation is far more tolerable than it was 12 months ago. So, if you don’t eat or drive, or heat your home, then yes, please ignore my endless ramblings. Anecdotally, I really enjoy cooking. For those of you who don’t know, I grow many of my veggies, and love to sauté them in a bit of olive oil. I normally keep quite a bit of it on hand but had to grab more the last time I went shopping. Low and behold, olive oil prices are up 130% over the last 12 months. So, I thought I’d substitute it out with motor oil, but considering gas is over $5 a gallon near me, I’m thinking about just good old butter. That’s only up about 26%. Inflation is the most regressive, oppressive, and nefarious “tax” on consumers around. The very people who can least afford it are the very people it affects the most and using inflation numbers “ex-food and energy” is outrageously deceptive.

Here’s what it comes down to: If the Fed raises rates later this week, then the signal is given that they are serious about combatting inflation. The downside to that is that higher rates make borrowing more expensive, ultimately slow spending, lowering profitability and growth, and hence, a recession. Recessions aren’t painless, but in my humble opinion, it is by far the lesser of 2 evils.

If they don’t raise rates, they’re signaling inflation isn’t their major concern, and prices will most likely continue to rise at an unacceptable rate. Personally, I think they’re trying to “thread the needle” to get to a “soft landing”. I get it, I really do. That said, in 35 years of doing this, I’ve never seen a soft landing. Expecting it is a bit like asking Andrew Tate to be a decent human being. You can hope, but the odds are slim.

I know this may sound doomy and gloomy, but it isn’t intended to be. Economics is cyclical and will always be cyclical. There is a chance that the consumer will continue to spend, and inflation will work itself out. So, short term, yes, we’re being cautious. However, this quote always makes me a bit happier: Nature always works itself out. It just takes time.

Hope this was informative for you, and as always, we appreciate your trust and confidence.