You Have One Job

"Restoring price stability is something we have to do," Jerome Powell said Wednesday, during remarks to reporters following a second consecutive 75bps rate hike from the Fed. He repeated some version of that (emphatic) line in response to virtually every question. It all comes back to inflation. Everything else is secondary. That much, at least, is clear. Powell, sounding weary, fielded a painfully predictable list of queries, and generally eschewed the temptation to deviate from what, by now,
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6 thoughts on “You Have One Job

  1. Because Powell wouldn’t answer McKee’s question — “How will the Fed know when policy gets close to where it’s trying to go?” — I will: when headline inflation, annualized, falls below 3%.

  2. Powell said, in essence
    – Rates now neutral at 225-250
    – Expect to be restrictive at 350+ by year end
    – Potentially more hikes in 2023
    – No more forward guidance, react to data from now
    – Need to slow economy, jobs
    – Are seeing economy slow, including consumer
    – Soft landing desired, no promises
    – Inflation overrides all

    No real change in Fed stance that I can see. Will raise rates until inflation is beaten. Don’t think we have materially more or less visibility on rate path than before, Fed was already basically data dependent

    Firehose of earnings underway, so far my impression
    – A handful of the very biggest and best companies in the world are reporting meh with topline deceleration and margin erosion, but much better than their weaker, smaller peers
    – The most defensive companies are beating
    – Companies levered to higher income consumers are doing pretty okay
    – Other, just scanning the tape, I’m seeing negatives (miss, lower) to positives (beat, raise) at sort of a 3:7 ratio

    If bulls are right, and it is only the lower income consumer who is cracking, then I think in 3Q we will get to see what it’s like when the middle income consumer cracks. Fed needs to bring inflation down 5-7 pts with tools that don’t work on some major drivers of inflation, my guess is that tightening down on the poor alone isn’t likely to be enough.

    1. @jyl sharp, concise analysis, as always. Maybe the wild card is the impact of QT. From my uninformed vantage point, I think QT, at the speed mapped out by the Fed, will take M2 growth into negative territory by 4Q. I would guess that will/would have an impact on all kinds of activity.

  3. Lately, whenever I see Powell’s picture, like the one here, he looks to have aged a great deal lately. I can’t help thinking that in spite of what they have done, the Fed is still on its back foot, as soccer fans say. Powell says he wants a slowdown to let supply “catch up” to demand. It seems to me that in many places that has already begun to happen. Inventories are up, partially because (IMO) stuff that was ordered to be sold a few months ago has finally showed up, and it’s piling up. Housing supply is higher than needed to clear the market at current prices and mortgage rates. All of a sudden there are five new houses within a block of mine that have been recently finished, and unlike four months ago, are suddenly not selling. We are seeing some things on sale and more to come (though not yet my favorite steaks or donuts — yesterday a donut shop charged me $4.25 for a mediocre long john). I’ll be interested to see October numbers as retailers start to test the Christmas shopping waters.

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