Latest / The Bear Market Podcast with Fexingo: Surviving Downturns, Buying the Dip, and Long-Term Resilience / How Fed Governor Bowman Is Fighting a Rate Hike
Transcript
- Lucas: Fed Governor Michelle Bowman said something on Friday that doesn't happen every day. She publicly warned her own colleagues against hiking interest rates to fight an inflation spike. Luna: That stood out to me too. Usually Fed governors save internal disagreements for speeches buried in footnotes, not CNBC headlines. Lucas: Exactly. And it's a pretty direct signal that the hawks don't have the upper hand right now. Bowman is seen as one of the more conservative voters on the Federal Open Market Committee. So for her to come out and say 'don't hike because of this inflation print' — that tells you a lot about where the center of gravity is inside the Fed. Luna: What was the context? I know inflation data has been a bit sticky this spring, but the market is still pricing in rate cuts later this year. Lucas: Right. The year-over-year CPI is hovering around 3.2 percent, core services are still elevated. But look at the real economy — real GDP growth annualized in Q1 was only 1.6 percent, up from 0.5 percent in the prior quarter, but that's not exactly booming. And the ten-year Treasury yield just dipped to 4.45 percent, the two-year is at 3.99. The yield curve is steepening, but it's still inverted by historical standards. Bowman seems to be saying: the growth picture doesn't justify slamming the brakes again. Luna: So she's arguing that the inflation spike is transitory, or at least not demand-driven. Lucas: That's the implication. She specifically warned against 'hiking because of an inflation spike' — her words. And the VIX responded, dropping 7.7 percent over the last five days to 15.32. The market read her statement as dovish. Not aggressively dovish, but enough to keep the rate-cut narrative alive. Luna: It's interesting that a single Fed governor can move the VIX that much. But Bowman is a permanent voter this year, so her voice carries weight. Lucas: She is. And there's a political angle too. The White House has been pressuring the Fed to cut rates ahead of the midterms. Bowman's statement gives cover to Chair Powell if he wants to hold steady or ease. It also signals internal divisions — which the market usually likes because it means less chance of a surprise hawkish pivot. Luna: Right, the Fed is more predictable when the doves and hawks are out in the open. So what does this mean for bond investors? The yield curve steepening we've seen — ten-year at 4.45, two-year at 3.99 — that's partly driven by this kind of rhetoric. Lucas: Yeah, the spread widened to 46 basis points on Thursday, down a couple basis points from earlier in the week, but still the steepest it's been in months. If Bowman is signaling that the Fed won't hike again, the front end stays anchored and the long end reflects growth expectations. That's a steepening bias. For bond investors, that argues for being short duration or at least underweight long-term Treasuries. Luna: Unless you think she's wrong and inflation reaccelerates. Lucas: That's the risk. If the April CPI print comes in hot next week, Bowman's statement might age poorly. But for now, the market is buying her logic. The S&P 500 hit 7,580 on Friday, up 1.4 percent in five days. The Nasdaq was even stronger at 26,973, up 2.4 percent. Growth stocks love a dovish Fed. Luna: So is this a 'buy the dip' moment for equities, or is the market getting ahead of itself? Lucas: I'd say cautious optimism. The VIX at 15.3 is low but not complacent — it's below the long-term average of about 19, but the VVIX, which measures volatility of volatility, is still at 86. That's elevated relative to history. It means options traders are hedging against tail risks. So the market is pricing in a benign outcome, but there's a layer of insurance underneath. Luna: The VVIX is like the fear gauge's fear gauge. If it stays high, it suggests the calm might be fragile. Lucas: Exactly. And Bowman's intervention doesn't eliminate the risk of a hawkish surprise from another governor like Christopher Waller or from Chair Powell himself. What it does is give investors a clearer map of the internal debate. And that's valuable in itself. Luna: I think that's part of why we do these shows — to help people make sense of signals like Bowman's statement. We don't have ads, we don't have sponsors pushing a narrative. It's just us trying to unpack what matters. Lucas: That's the whole point. And if listeners find value in that, the simplest way to support it is buy me a coffee dot com slash fexingo. No paywall, no perks — just knowing the show stays independent. Luna: Yeah, it keeps us honest. And we can keep digging into these Fed dynamics. Lucas: So back to Bowman — one other angle I want to explore. She's not just pushing back on a rate hike. She's also implicitly criticizing the Fed's communication strategy. By speaking out so directly, she's saying the committee should be more transparent about disagreements. That's a governance argument as much as a monetary policy one. Luna: Does that make the Fed more or less effective? Lucas: In the short term, more transparent means more volatility as the market digests each speech. But over time, it reduces the shock value of surprises. I think that's actually healthy. The old model of 'the Fed speaks with one voice' is outdated when the economy is this fragmented. Luna: Fragmented how? Lucas: Services inflation is still hot, but goods inflation is cooling. The housing market is slowing, but rents are sticky. The labor market is tight but wage growth is decelerating. You have a lot of cross-currents. So it makes sense that FOMC members disagree. Bowman is just the one who said it out loud. Luna: And the market rewarded her for it. At least for now. Lucas: Right. The S&P closed near its high on Friday. The Russell 2000, which we've talked about in previous episodes, was up 1.7 percent over five days to 2,919. Small caps are particularly sensitive to rate expectations, so Bowman's message gave them a boost. Luna: So the playbook for the next few weeks: watch the CPI print, watch for more Fed speeches, and keep an eye on the VVIX. Lucas: Exactly. The data will tell us whether Bowman was ahead of the curve or just lucky. Either way, it's a reminder that central bank politics matter as much as the economics.