Will The K-Shaped Economy Destroy America? | Darius Dale

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I'm not giving up.

**Anthony Pompliano** (0:03)
I am selling the building.

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The final season of FX is the Bear.

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The restaurant is flooded. Everything's either going to be okay.

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No, stop. Or not. We are outgunned and we are outmanned, but we have each other.
FX is the Bear, the final season. All episodes now streaming on Disney Plus.

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**Darius Dale** (0:59)
The job of the Fed is to boil us alive without us hopping out of the pot. If we hop out of the pot, then we have financial stability concerns, and then we have all sorts of issues that cause problems in the real economy and asset markets at the Fed. That will be worse than just having sticky above target inflation. And so this is the lesser of two evils in the context of the fiscal dynamics that we continue to highlight in the US economy.

**Anthony Pompliano** (1:19)
What's going on, guys? Today we got a great conversation with Darius Dale. He's here in person. We talk about what's going on at the Federal Reserve. Kevin Warsh stepping into the leadership role. How you should think about inflation expectations in relationship to actual inflation. What does this mean for your portfolio, for public stocks, or how should you actually think about the impact of AI? On top of that, we dig into the affordability crisis that is hitting millions and millions of Americans. We talk about some anecdotal examples of exactly what it means. I literally look up live some prices of items that are going to shock you. And Darius explains some of his life experience and where he's actually started to meet people and what he's learned from them, all of that and much more in this conversation with Darius Dale. All right, Darius, Kevin Warsh now is taking over the control of the Federal Reserve. He's the big dog at the Central Bank, and he seems to be wanting to run the place a little bit different. What's your take on his original press conference and kind of what he's doing differently than his predecessor?

**Darius Dale** (2:09)
Yeah, look, before we even get started, man, I just want to say thanks for having me. Love this set, man, and this studio is gorgeous. I feel like I'm part of history in here, man. So let's make some history today.
I'll say, the first thing I'll tell you is that, you know, we think Kevin Warsh is a dove in hawks' clothing.

**Anthony Pompliano** (2:28)
What does that mean?

**Darius Dale** (2:29)
A dove in hawks' clothing, someone who ultimately wants to have easier monetary policy, maybe because of his relationship with the administration, but I doubt it. I think he genuinely believes that AI has massive dis-evaluationary potential. However, he has to wear the armor of a hawk in order to create the scope, the landing space, for the Fed to get to that outcome.
Ultimately, what we think we're going to have to do here over the next, let's call it two to three quarters, perhaps, is the Fed has to either type monetary policy or uses communication tool to signal to the markets that it may type monetary policy, or both, in order to create that scope for a much-

**Anthony Pompliano** (3:07)
Why do you think it needs tighter monetary policy? If you look at inflation expectations, maybe over the last couple of weeks, it started to come down. Do you think that that changes that need for them?

**Darius Dale** (3:17)
What I'll say on inflation expectations, we've done a big statistical analysis on the drivers of inflation, the things that lead and lag inflation, and inflation expectations have very little statistical relationship with future inflation outcomes.
What has a meaningful impact on future inflation outcomes are things like the monetary drivers of inflation, so the rate of change of money supply, the expansion and or contraction of the money velocity, that's important. There are policy drivers of inflation, most notably, deficit spending, the Fed's monetization, and then to the extent that there's meaningful deregulation in the banking sector, which there currently is, the credit growth cycle can be a leading indicator of inflation. Then there's ultimately these, I don't necessarily agree with them, there's these output gap drivers of inflation to the extent that the economy is growing above potential or the unemployment rate is below, the in Nehru, the non-inflation accelerating rate of unemployment. Those are all the kinds of things that kind of lead inflation. Nothing perfectly leads inflation, but when you put all those things together on net, they are sending a very hawkish signal to policymakers and to the markets that the Fed has to do at least a little bit of something to get this.