The Outsider Perspective Issue 435 | The Beltway Outsiders

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Good Friday Morning! Except to restoration artists. In Poland, a 200-year-old shrine to Jesus and the Virgin Mary underwent restoration efforts that… fell flat. Onlookers were shocked when both Jesus and Mary went from being divine creations to looking like characters from The Simpsons.

The Sun called Mary the “Virgin Scary” after looking at the restoration job. And it’s easy to see why. Mary looks like she has a Freddy Kruger mask on, and it clearly doesn’t fit.

If you’re looking for someone to restore, check some past work first—especially if you’re ever in Poland.

This week, I’m going deep into how Trump is navigating inflation and where things are headed—links to follow.

Quick Hits:

Former Democratic Congresswoman Cori Bush’s husband has been indicted. Federal prosecutors are investigating him for wire fraud and submitting false applications to steal COVID-19 relief funds. Cori Bush paid her husband $150,000 in campaign funds to be her “bodyguard,” something Republicans demanded be investigated when she was in Congress.
Snopes buried Ilhan Omar’s family history. It’s been a rough week for “Squad” members. This week, an explosive report came out that I featured in the Almanac. It showed that Snopes and other fact-checkers covered up Omar’s family history.
Europe claims it’s working on a 5 to 10-year plan to replace the U.S. in NATO. I will believe this when it happens. The United States is ~75% of all NATO spending. Europe would go bankrupt if it fully paid for its defense, including training soldiers and building the necessary military infrastructure. European liberals are going to have to choose: they can have their “free healthcare” and “green economies,” or they can defend themselves. Because I already know the answer to that equation, I will continue laughing at fake European elitism.
The American Almanac is growing! I want to express my continuing thanks to those of you who subscribe, share, and help us grow. You can subscribe here for free.

Where you can find me this week

Please subscribe, rate, and review The Horse Race on YouTube — the reviews help listeners, and readers like you find me. Make sure to sign up for the Conservative Institute’s daily newsletter and The American Almanac.

We Can Predict Future Weather – And People Reject That – Conservative Institute

Gavin Newsom’s 2028 Presidential Campaign Fails To Launch – Conservative Institute

Pam Bondi Needs To Investigate Leftist Domestic Terrorism – Conservative Institute

Where Are We On Inflation?

The Federal Reserve kept its interest rates steady at its most recent meeting. The press focused heavily on tariffs and their impacts on the economy. Woven into this are the financial decisions of Biden and Janet Yellen versus the direction Trump and Bessent want to take the economy.

The Biden administration was basic on inflation: They allowed the Federal Reserve to increase interest rates to attack inflation but otherwise went full speed ahead on government spending. Janet Yellen contributed to this and made things worse through the Treasury, particularly by issuing short-term debt to juice the economy.

In June 2024, Scott Bessent hammered Yellen for these actions and accused her of juicing the markets ahead of the election. Bloomberg reported:

Bessent, who is seen as a potential pick for a top economic position in a second Trump administration, said Yellen had “taken control of monetary policy” through Treasury issuances.

“Yellen in October changed the cadence of the composition of the Treasury issue which eased financial conditions substantially,” Bessent said during a wide-ranging Bloomberg roundtable on Friday. “You had this incredible loosening of financial conditions.”

In the interim, Yellen ran up the debt, creating a sugar high in markets that is crashing now. Further, because Yellen relied on short-term debt issuance, it had much higher interest rates, which is costing the U.S. government even more.

CNBC noted in January, “Nearly $3 trillion of U.S. debt is expected to hit maturity in 2025, much of it of a short-term nature that the Treasury Department has been issuing in large amounts over the past few years.”

One of the people CNBC interviewed estimated there are at least $2 trillion in “excess“ Treasury bills floating around right now (there’s an overall market of nearly $30 trillion).

What does the Treasury want to do? Bessent has $3 trillion in debt coming to maturity with high interest rates. What’s the ideal scenario? Refinance the debt with lower interest rates and a longer time horizon.

That Bloomberg piece in June noted the following:

Bessent offered support for the idea of the U.S. issuing ultra-long-term bonds, an idea studied in Trump’s administration by then-Treasury Secretary Steven Mnuchin. The idea failed to gain traction, with Treasury’s market advisers saying they did not foresee enough demand for 50- and 100-year bonds.

“It would have been a great idea,“ Bessent said, and noted countries such as Mexico and Austria have done so, dismissing the idea that there would be insufficient demand for the bonds.

“When rates are very low, you should extend duration,“ he said. “I think it’s very unfortunate what Secretary Yellen’s doing. She’s financing at the front end, and she’s making a bet on the carry trade, which is not good risk management.”

Bessent seemed less concerned with Treasury’s longstanding practices in debt management, which is to be “regular and predictable“ in its issuance, saying it would be feasible to issue a first ultra-long bond as a one-off and see how demand developed.

In short, what Bessent wants to do is: 1) get interest rates lower, 2) refinance the U.S. debt on those lower interest rates with long-term bonds, and 3) drive investors into those long-term bonds to shore up demand.

What stands in the way of this plan? Inflation.

The Federal Reserve is being forced to maintain higher rates because inflation is still elevated. Nick Timiraos calls the Fed’s current plan a “wait-and-see“ outlook. The Fed can cut rates if conditions worsen or raise rates if inflation rises.

What would help the Fed cut rates? The economy is slowing down.

Donald Trump wants lower interest rates. He’s been outspoken about this point, and he and Bessent are aligned on using those low interest rates to refinance debt and engage in big infrastructure spending at low interest rates.

That’s why there’s this interesting interplay between tariffs, inflation, the Fed, and the Treasury Department. Most media coverage focuses on the one-time price increases from tariffs. However, the Federal Reserve sees tariffs as one-offs – true transitory inflation – that is separate from what drives inflation.

Timiraos noted in the Fed’s stance, “Stocks rallied because a majority of officials penciled in two rate cuts for this year, the same as in December. Powell held out, with low conviction, the prospect that ‘tariff inflation‘ might not demand any meaningful change in the Fed’s interest-rate posture.”

John Carney summed up the Fed’s quandary well:

The press’s fixation on tariffs is increasingly disconnected from the Fed’s assessment. Powell’s repeated comments about tariffs being only one part of the inflation puzzle seemed to fall on deaf ears. The Fed’s projections show that tariffs are not the primary driver of higher inflation forecasts. Instead, the Fed is grappling with the reality that inflationary pressures were stronger than anticipated well before Trump’s return to the presidency.

The Fed’s latest projections reflect a broader effort to correct past errors, acknowledging that inflation is stronger than previously thought and that economic growth will likely slow as a result of higher interest rates. The March 2025 SEP is not about tariffs; it’s about the Fed coming to grips with its previous mistakes and recalibrating policy to address a far more persistent inflation problem than it once anticipated.

If you’re Bessent and Trump, and you know that’s where the Federal Reserve is, and you need them to cut rates, you need to change the economic reality.

That’s why I’ve grown to believe Trump and Bessent don’t necessarily mind economic pain or even a mild recession. If you kill off economic growth, the drivers of inflation are gone, you get your lower interest rates, and you can refinance the debt with your preferred method.

Additionally, if the United States goes into a recession, the rest of the world would be in an even tighter spot, especially with tariffs pushing on them. Investors would seek a safe haven, and what would be safer than a longer-term U.S. bond?

Will this plan work? Who knows. Bessent has called the period we’re in the “detox period,“ which is when we ween ourselves off the sugar high of Yellen’s Treasury antics. He’s also not saying recession is off the table.

This is the kind of language that Jerome Powell first used when fighting inflation. He believed the Fed would trigger a recession. Government spending from Biden and Yellen offset the Fed’s work.

Powell was never fully aligned with Biden and Yellen. I wonder if he has a better relationship with the new administration. If Trump seeks to end inflation as an issue to get lower interest rates, Powell will likely oblige. The Fed is about as close to being neutral on policy as it has been in a while.

My take on things contradicts conventional wisdom, which states that Trump wants to juice economic growth through low interest rates and big government projects. Trump still wants to do that because that’s who he is at his core. But that can’t happen until you square the problems from Biden/Yellen/inflation.

When Trump entered office in 2017, the United States had just seen some of the first growth since the Great Recession in Obama’s term. We had spent more than a decade in a low-interest rate environment with inflation below 2%. Trump could easily play that high-growth, low-interest rate plan.

That’s not true now. Biden’s mismanagement of inflation and Yellen’s shenanigans are a big issue facing the new administration. I think I’ve laid out their plan to tackle it here. My general skepticism of the central planning organs of the government to impact the broader economy without consequence says they won’t be wholly successful.

But we’ll see. It’s nice to have a White House, Treasury, and Federal Reserve aligned on attacking debt and inflation.

Links of the week

Democratic Town Halls are being disrupted by… Democrats – Free Beacon

Democrats’ silence is damning as leftist violence explodes – NYPost

GOP Hawks at odds with Trump and DOGE over military and defense cuts – Punchbowl

China’s EV maker BYD surging as Tesla lags in market – Semafor

Liberal influencer Harry Sisson was blasted this week as a sex creep by progressive women – Free Beacon

Russian soldiers are seen riding into battle on “e-scooters” before a Ukrainian drone lights them up – The Sun

Israel could expand war into West Bank, opening two fronts – Semafor

L.A.’s homeless population is worsening wildfires – RealClearInvestigations

How Deep Is the Hole Democrats Are In? – Ruy Teixeira, Liberal Patriot

Back on the road, Tim Walz tries to find his voice and fill ‘the void’ – CNN