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Why Historic CPI Rally Was A Disaster For The Fed
Headed into the November FOMC meeting, many worried Jerome Powell would come across as unduly concil
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So is it that there’s so much money sitting on the sidelines that institutional and retail investors are looking for any reason to jump back in? Such an odd dynamic; good is bad and bad is good. Reminds me of “Bizarro World” from the comic books of my childhood.
Well, there were 3 fed speakers on the CPI day that could have walked back the market jump, but either they don’t want to or they failed in their attempt. From what I read, their statement likely gave more fuel to the rocket ship.
On second thought, their statements are consistent with the FOMC official statement. Now I wonder whether the dovish FOMC statement were in fact from the voting members, and Powell is the lone hawk in the FOMC meeting. He then gave a hawkish press release just to show everyone who’s the boss. Powell did the same thing at Jackson hole and tighten financial conditions with hawkish (or Volckish?) speech.
Not a disaster. Both recent events and most economic releases lately argue for lower rates and the market obliged. Pretty soon inflation fighting will likely look like fighting the last war. But we will have plenty more data between now and January to see if this is correct. The stock market may get blindsided by a rapid fall in corporate profits….
From a practical perspective, what action is the Fed going to take that will meaningfully influence this trajectory? Most of the more aggressive actions they could take (surprise rate hikes, for example) won’t happen. The market seems to assume that the fed will wilt on rates at the first whispers of any sort of financial distress in the market. Seems like a self-reinforcing cycle: raise rates – market sees some change in the rate of change of rates – market financial conditions loosen – fed tries to react.
Could you expand on this, please? Was volume lower than you think it should have been? Or was this just more general commentary? Do you know who was driving the rally?
Also, is it actually bad for the Fed, or just the appearance of bad? I mean i (think i) understand how higher equities translate to a broadly easier time raising cash and thus increased demand, but isn’t that easing impulse mostly confined to businesses? Any increased demand on the part of guys like me would be at the end of a long lag.
Also, i wonder if much of yesterdays rally was exacerbated by the harried flight out of crypto.
H-Man, so what does the market do with a soft print on CPI in December?