Jerome Powell, Chairman of the Federal Reserve, speaking at the New York Economic Club on Nov. 28th, 2018. Adam Jeffery | CNBC

A few months ago, I laid out a simple thesis concerning the Federal Reserve. First, I argued that the Federal Reserve's monetary policy was too tight. There were too many interest rate hikes over a short period of time and the magnitude of the increases would harm business. Moreover, the shrinking of the Fed's balance sheet was slowing the growth of the nation's money supply to less than half its normal rate (3.00 percent vs. 6.25 percent). The second element in the theory was that President Donald Trump would be outraged by the Fed's actions and he would strongly object forcing the Fed to reverse course. The justification for this view was that the founders of the Federal Reserve never envisioned it to be an independent agency and most Presidents in the post World War II period lobbied hard to influence Fed decisions. Moreover, I pointed out that this President had changed the leadership of every government agency related to bank regulation replacing what I would call "hard liners" with men and women more congenial to what was believed to be a pro-business approach to banking. The acronyms for the agencies that saw a leadership change are: FSOC, FRB, FDIC, OCC, CFPB, CFTC, NCUA, SEC, Labor, and soon the FHFA. The point here was the President demanded and obtained changes that he believed would facilitate his economic programs.

Powell paused

I also pointed out that the concept of a "neutral interest rate" was a Fed public relations farce. This argument was made because since July of 1954, there has never been any evidence that the Fed, nor anyone else, established factual evidence that a neutral interest rate ever existed. Wednesday, at the New York Economic Club, Federal Reserve Chairman Jerome Powell certified the theory. He suggested that the Federal Reserve might look at interest rates a bit differently. He implicitly dramatically lowered his belief as to what the true neutral interest rate is and he suggested that it might make sense for the Fed to pause awhile (presumably in 2019) to determine what the effects of recent monetary policy have been. There are two messages in what Mr. Powell said. The first is that the Fed has clearly caved in to the President's wishes putting it in line with all of the other banking regulatory agencies. The second is that what I believe has been draconian monetary policy might be eased.

Closer than Nixon's Fed