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Powell Shoots Down 75, But Talks Tough On Inflation
"In principle," the Fed can cool the labor market and bring supply and demand back into balance with
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My translation:
“{Fed tools] don’t work on supply shocks, they only work on demand” + “[Fed] needs to work on what it can first” + “We don’t focus on any one market. We wouldn’t be targeting any one market or taking a view on whether it’s a good level or bad level” = Fed willing to suppress demand enough to overcome supply shortage, regardless of whether it pushes equities into a bear market.
“We have a good chance to have a soft or soft-ish landing” = Landing may be hard, no promises.
My conclusion:
The pundits, strategists, and investors trying to predict what the Fed will do by reference to what would or would not be a “policy mistake” need to accept that, for the Fed, the “policy mistake” will be if it fails to break inflation’s back. Investors losing money . . . think “collateral damage”.
H-Man, it appears we are still seeking confluence?
‘If you’re a normal economic person’….. what a lovely way to express how out-of-touch you are with real world problems.
Somewhere along the way I came across someone’s opinion that if you really wanted to know what was going on with the economy, watch the copper/gold futures ratio. And with that was also the opinion that the Federal Reserve is the very last place you’d want to look, because the Fed is totally clueless (and I seem to recall a movie scene where somone—Michael Douglas?—said something similar).
In watching these rate hikes, I recall that in January or February of 2020—just before COVID—the consensus of Philip Tetlock’s Good Judgment Project board was that the Fed would not reduce rates. And that was because Powell was insisting the cuts were over (although my memory could be faulty on that). And then practically overnight they did a complete about face and the overnight rate dropped off a cliff.
And now . . . how long ago was it that Powell was saying that inflation was just transitory?
@Rick Jones
The “about face” in Feb 2020 was understandable, was it not? Should the Fed have held rates unch’d then?
“in January or February of 2020—just before COVID—the consensus of Philip Tetlock’s Good Judgment Project board was that the Fed would not reduce rates. And that was because Powell was insisting the cuts were over (although my memory could be faulty on that). And then practically overnight they did a complete about face and the overnight rate dropped off a cliff.”
I anticipated a relief rally because of all the jawboning and hawkishness leading up to the meeting (which worked!). Why take 75 bps off the table? I had thought perhaps the Fed had become convinced that jawboning alone could tighten FCI without actually doing anything, thereby paving the way for the market to ably digest 50 bp hikes beneath the specter of 75 bp hikes. By taking the latter off the table, he has removed any comfort buffer the jawboning had achieved for the actual 50 bp hikes. This would seem to make the next meeting much more perilous, unless, that is, they plan to repeat the hawkish jawboning again in late May or early June leading into the nest meeting.
If you’re a normal economic person you probably can’t buy Twitter and shoot yourself into space.