Price Discovery. Via Tasseography
Real-time Fed tasseography is a very difficult undertaking. Almost as a rule, asset prices aren't very good at it.
Market participants tend to hear what they want to hear, and algos trade headlines not nuance. Price action observed in the immediate aftermath of FOMC decisions, and particularly gyrations engendered by press conference soundbites, isn't necessarily to be trusted.
That price action is a manifestation of two things. In part, it's algorithms trading on key words, and chasing each o
Q: Do you think the Fed has a credibility problem?
MR. POWELL: No. I don’t.
I purposely watched the entire press conference myself. My reaction was that it was neutral. The Fed is extremely data dependent. Looking at this am GDP print I would have to say that the market is looking at slower growth and saying to itself- how likely is a 4% terminal rate now? There are not nearly that many bullets left now- the landscape the Fed is looking at is at least symetrical. Growth is now just as big an issue as inflation. So all the Dudley’s, El Erians, Ackmans, Summers and all the others can now be a little more humble about how the Fed has committed grave errors. Nobody is going to get this right exactly right, not Powell or any of these names I mentioned. There are far too many variables with far too many possible outcomes. Powell was spot on to throw out forward guidance. Take his statement about going meeting to meeting at face value- and that he feels rates are closer to neutral. And that is why a central bank frequently moves in small increments- so if they are wrong they can more easily adjust. And that is my takeaway. You can kiss 75 bps moves in one meeting goodbye. They might raise rates again- but 50 is probably max and more likely you are looking at 25s- if at all. Powell said one other thing in his own defense which I have also observed- plenty of other central banks moved earlier and despite this have a very similar problem with inflation as the USA. And Powell said- would it have made that much difference if we had moved 3 months earlier? It is a lot easier to be a critic than to actually do something yourself.
Right on
I agree. One caveat I’d add is if the market keeps responding so bullishly to Powell’s pressers, I’d expect any slowing or reduction in the rate hikes to be accompanied by much more hawkish commentary from all the Fed. Also seems to me this market is so geared up for the all-clear, that it just doesn’t feel like we’re that close to that point. When people stop making bull market shopping lists and use them instead to light their grills and fireplaces, I think we’ll be a lot closer.
Thanks for the wonderful compendium of thoughts from a bunch of “expert” sources I can’t readily access. I would have reacted a bit sooner but all this slippery chat really messed me up and I had to wash my hands before I could type. Just goes to show what as Hollywood has always said, nobody knows anything (LOL). This all reminds me of the poem by John Godfrey Saxe, “The ‘Wise’ Men and the Elephant.” This is one of my all-time favorites which Natalie Merchant, also a favorite, has set to excellent music. Many blind guys are looking at the same thing but seeing it completely differently.
Alternative ending: (10,000 maniacs are looking at the same thing but seeing it completely differently).
Merchant eh? I am big fan too.