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Fed Pivot Math Seen Wildly Implausible
According to one popular sell-side strategist, a string of "very hot" US economic data could catalyze a "rip lower" for recently buoyant equities.
For the summer rebound in stocks to be remembered as anything other than a bear market rally built on systematic flows and short covering, the macro data needs to be cool enough to dissuade the Fed from incremental hawkish escalations, but warm enough to dispel recession concerns.
While elaborating on what would count as the kind of "very hot" data
I think your post is really correct. You would have to see very benign inflation prints and a lousy payroll number for September to get a “pivot”. Right now employers are hoarding labor, as it has been so hard to source for so long. That is going to draw this cycle out. The inverted yield curve, strong $ and commodity prices likely will be good signals at some point, but it may take on the longer side of the lag to work out (12-18 months). The payrolls and average hourly earnings were blowout numbers to the upside. While I think the Fed is going too fast I really cannot blame them for being hawkish.
I don’t think the Fed would look at 1 year inflation numbers though. If you did get prints for 3 months that suggested inflation was benign like 0-.3% for 3 consecutive months and you saw weak production and employment for 2-3 months then you could expect a pivot. But that does not appear to be in the cards right now.
@RIA agree, think Fed will look at trend of monthly CPI more than what 2022 will print, especially as we get closer to end of year.