Trump's Plan B: A 10% Tax If SCOTUS Voids Tariffs

In the chaotic spring of 2020, as the COVID-19 pandemic brought the global economy to a standstill, the U.S. Federal Reserve projected an image of unified, overwhelming force. It slashed interest rates and unleashed a firehose of liquidity through massive bond purchases.

But newly released transcripts from the Fed's closed-door meetings paint a more complex picture. They reveal that behind Chair Jerome Powell's decisive public stance, there was significant internal division over just how far and how fast the central bank should go. The documents show a tense debate shaped by a deep-seated concern: protecting the Fed's political independence at a moment of unprecedented crisis.

The Contentious 100-Point Rate Cut

As financial markets began to spiral in early March 2020, Fed policymakers met twice to orchestrate their response. The first move on March 3, a 50-basis-point rate cut, was unanimous. Less than two weeks later, however, the consensus fractured.

At its March 15 meeting, the Fed pushed through a full 100-basis-point cut. While Cleveland Fed President Loretta Mester was the only official dissenter, the transcripts show she was not alone in her reservations. Three other influential members were not immediately convinced:

• Randal Quarles, then Fed Vice Chair for Supervision, worried the move would signal panic. "Lowering the interest rate will not open schools, and it won't finish the NBA season," he quipped.

• Raphael Bostic, President of the Atlanta Fed, argued that with a large fiscal stimulus package expected from Congress, the "urgency of our moving to a dramatically more accommodative stance" was reduced.

• Robert Kaplan, then Dallas Fed President, expressed sympathy for these arguments, though both he and Quarles ultimately voted for the cut.

The core concern was that such a drastic move could backfire, telegraphing alarm and worsening the very instability the Fed was trying to contain.

Powell's Push for 'All-In' Action

Despite the hesitancy, Powell forcefully argued for decisive action. "I feel that there is no useful purpose to be served in holding back today," he told his colleagues, successfully swaying the committee.

The group ultimately went even further than originally planned. Minneapolis Fed President Neel Kashkari suggested making the central bank's bond-buying program open-ended rather than capping it at a specific dollar amount.

"We should be erring on the side of doing too much," Kashkari urged, a sentiment that would become a public mantra for the Fed in the months that followed.

Guarding Independence Amid Political Pressure

Even as they embraced aggressive measures, policymakers were acutely aware of the risks to the central bank's independence. With an array of new programs, including direct purchases of corporate credit, the Fed was entering uncharted territory.

Kashkari himself warned that the Fed needed to design these programs "in a way that can support the economy, without having us step out of our lane."

Philadelphia Fed President Patrick Harker was even more direct. "Given the declaration of a national emergency, our actions might also be viewed as bowing to political pressures," he stated, referring to the pressure being exerted by the Trump administration at the time. The key, he argued, was to communicate that the Fed's goal was providing relief, not economic stimulus.

One idea from Boston Fed President Eric Rosengren highlighted how far some were willing to think outside the box. He suggested encouraging the Treasury to issue more bills to keep short-term rates from falling below zero, though the idea did not gain traction.

Why the Fed Drew the Line at Yield Curve Control

By the summer of 2020, concerns over independence had become a central theme in Fed discussions. This was the primary reason policymakers ultimately rejected a proposal to implement yield curve control (YCC), a policy that would involve capping long-term interest rates.

While Vice Chair Lael Brainard had presented YCC as a potential next step, others saw it as a bridge too far. St. Louis Fed President James Bullard voiced a common view at the June meeting, arguing that YCC "may prove to be incompatible with central bank independence."

After extensive debate, the committee decided against the policy. The 2020 transcripts reveal a central bank that, while willing to act with unprecedented force in a crisis, was also intensely focused on drawing clear lines to protect its long-term institutional integrity.

The U.S. Department of Energy has officially rejected claims that it is considering a plan to use Venezuelan crude oil to replenish the nation’s Strategic Petroleum Reserve (SPR). The denial follows a report, citing two sources, that the Trump administration was exploring an oil swap with U.S. companies to bolster the emergency stockpile.

"This is false," a spokesperson for the Energy Department stated on Friday. "We are not currently considering using Venezuelan oil to refill the SPR." The spokesperson also confirmed that no such exchange is currently planned.

An aerial view shows the Bryan Mound Strategic Petroleum Reserve in Freeport, Texas, a key facility for the U.S. emergency oil stockpile.

Details of the Alleged Oil Swap Proposal

According to the two sources, the proposed plan involved a complex exchange designed to move Venezuelan oil into the U.S. market while simultaneously adding to the SPR. Under the arrangement, Venezuelan crude would be delivered to U.S. refineries. In return, participating companies would supply U.S.-produced medium sour crude directly into SPR storage facilities.

The sources indicated the administration was looking to transfer the Venezuelan crude to storage tanks at the Louisiana Offshore Oil Port for subsequent shipment to refineries. The United States has asserted it would control Venezuela's oil sales and revenue indefinitely following the capture of President Nicolas Maduro earlier this month.

The Push to Refill America's Oil Reserve

The Strategic Petroleum Reserve, the world's largest emergency oil stockpile, is stored in a series of underground salt caverns along the Texas and Louisiana coasts. Replenishing it has been a stated policy goal for the Trump administration, which pledged on the first day of its second term to fill the emergency reserve as part of a broader energy support strategy.

Currently, the SPR holds approximately 414 million barrels, which is about 60% of its total capacity. However, efforts to refill the reserve have been hampered by a lack of funding and ongoing maintenance requirements.

Funding Challenges and Alternative Strategies

The administration has been seeking creative ways to add crude to the SPR without direct government spending. U.S. Energy Secretary Chris Wright has previously stated that the administration was exploring alternative approaches, including potential deals with private companies to supply oil.

This search for alternatives comes as direct funding has been reduced. A major tax and spending bill last year allocated only about $171 million for SPR oil purchases and maintenance, a significant decrease from the $1.3 billion originally included in the legislation.

From a technical standpoint, Venezuelan crude is generally denser and has a higher sulfur content than the U.S.-produced crude that has traditionally filled the SPR.

Russian President Vladimir Putin is actively mediating the situation in Iran, aiming for a rapid de-escalation of tensions, the Kremlin confirmed Friday. The move follows direct phone calls between the Russian leader, Israeli Prime Minister Benjamin Netanyahu, and Iranian President Masoud Pezeshkian.

Moscow has also condemned threats of new military action from the United States, which came after protests broke out in Iran late last month.

Russia Proposes Dialogue with Israel and Iran

During his call with Prime Minister Netanyahu, President Putin affirmed Russia's readiness to "continue its mediation efforts and to promote constructive dialogue," according to a Kremlin statement. Putin outlined his vision for enhancing stability across the Middle East, though further details of his mediation proposal were not disclosed.

In a separate conversation, Iranian President Pezeshkian briefed Putin on what the Kremlin described as Tehran's "sustained efforts" to normalize the internal situation.

The Kremlin reported that both Russia and Iran are aligned in their support for de-escalating tensions as quickly as possible. The two nations agree that any emerging issues, both concerning Iran and the wider region, must be resolved "through exclusively political and diplomatic means." Putin and Pezeshkian also reaffirmed their commitment to the strategic partnership between their countries and to ongoing joint economic projects.

SCO Blames Western Sanctions for Unrest

The Shanghai Cooperation Organization (SCO)—a bloc that includes Russia, China, India, and Iran—publicly opposed any external interference in Iran’s affairs. The organization pointed to Western sanctions as a key factor creating the conditions for the recent unrest.

"Unilateral sanctions have had a significant negative impact on the economic stability of the state, led to a deterioration in people's living conditions, and objectively limited the ability of the Government of the Islamic Republic of Iran to implement measures to ensure the country's socio-economic development," the SCO declared in a statement.

The protests, which began on December 28, were triggered by soaring inflation in an economy heavily impacted by international sanctions.

US Tightens Sanctions as Moscow Pushes Stability

In contrast to Russia's diplomatic approach, the U.S. Treasury announced fresh sanctions on Thursday. The new measures target Iranian officials, including Ali Larijani, the secretary of Iran's Supreme Council for National Security.

When asked what specific support Russia might offer Iran, Kremlin spokesman Dmitry Peskov emphasized Moscow's broader role. "Russia is already providing assistance not only to Iran but also to the entire region, and to the cause of regional stability and peace," Peskov stated. "This is partly thanks to the president's efforts to help de-escalate tensions."

Political Messaging

Source: Bloomberg

Source: Yahoo Finance

Federal Reserve Vice Chair Philip Jefferson indicated he supports holding interest rates steady at the central bank's upcoming January meeting, citing a "cautiously optimistic" outlook for the U.S. economy.

Speaking in Boca Raton, Florida, on Friday, Jefferson suggested that previous rate cuts have positioned monetary policy in a neutral range, allowing the Fed to adopt a more patient stance.

A 'Wait-and-See' Stance on Policy

In his first public comments on monetary policy since November, Jefferson argued that the current policy is appropriate for evaluating future economic data.

"The current policy stance leaves us well positioned to determine the extent and timing of additional adjustments to our policy rate based on the incoming data, the evolving outlook, and the balance of risks," he stated.

This language closely mirrors the Fed's December post-meeting statement, which was widely interpreted as a signal that the central bank would pause its rate adjustments. The Fed's policy rate currently sits in a range of 3.50% to 3.75% following three consecutive quarter-point cuts. Jefferson was part of the 9-3 majority that voted for the last reduction in December.

He described last year's rate cuts as "the right step" to balance the risks of persistent inflation against the potential for a weakening labor market, adding, "This policy stance puts the economy in a good position moving forward."

Economic Outlook: Steady Growth and Cooling Inflation

Looking ahead, Jefferson laid out a stable forecast for the economy. He expects near-term growth to be around 2% and the unemployment rate to hold steady near its December level of 4.4%.

While acknowledging upside risks to inflation, he projected that it would return to a sustainable path toward the Fed's 2% target. He addressed the rise in core goods prices last year, attributing much of it to tariffs.

"It is a reasonable base case that the effects of tariffs on inflation will not be long-lasting—effectively, a one-time shift in the price level," Jefferson explained, noting that inflation expectations remain anchored.

Reflecting this sentiment, financial markets are currently pricing in only a 5% probability of another rate cut at the Fed's meeting on January 27-28.