McElligott ‘Feels Pretty Emphatic’ About This Fed Take
The word "shock" was bandied about on Thursday to describe the Fed's new dot plot, and I have to say: I'm not sure it's especially accurate.
Flagging a terminal rate of 5.1% after saying (as virtually every Fed official did last month) that the new median projection for peak rates would be higher than the 4.6% tipped by the September SEP didn't strike me as particularly "shocking." Markets were betting on a ~5% terminal rate prior to Tuesday's dovish CPI report. Leaving the door open for 5.25%
Good take
It is a good take. I agree. But the best laid plans often go awry.
The best news to me is that we have runway to manage this thing. If there are any impulses either way, the hope is to manage the economy over a period of months in preparation for coming year. We don’t want to wrangle this calf in just a few seconds.
It will be a slog next year. There are significant recession risks. The European economy is likely going to slow dramatically due to sanctions and the war. Additionally, the Chinese people and their economy are fumbling Covid and tripping over each other under the stewardship of Xi and the CCP. They’re not going to have a pleasant winter either. The US will not escape the drag that Europe’s troubles and China’s nearsighted economic management will impose on the world.
I agree, not likely they get this just right, but I think H/Chuck make a good point about the way the fed is behaving in relation to how they want to be perceived and their aspirational outcome. If only they can avoid a train wreck for three more months…
Our Dear Leader has made reference to the non-carbon based entities often dominating intra-day price action. Yesterday was a remarkable example of that. I was on a day off, chopping up vegetables in the kitchen during Powell’s press conference. The swings in the indices were remarkable, obviously triggered by algos reacting to certain key words.
Ah, remember when the capital markets were venues to allocate capital between savers and entrepreneurs and home buyers? Rather than casinos for speculators?
Yes, how true. But I also remember Merrill Lynch charging me ~$25 to trade 100 shares of stock.
Gamblers at the casino get “free” drinks. Enjoy your “free” trades. Neither the casino’s nor Merrill Lynch are losing money. https://www.investmentnews.com/raining-records-merrill-lynch-216011
Heaven forbid we ever get a Fed chair who stutters!
Maybe Powell should wear an earpiece and have a trader watching the tape and giving him instructions. “Say that word again. And again! Once more and she’ll be down for the count!”
“I’ve got a fever, and the only prescription is more cowbell!”
The Fed has delivered more cowbell, the only medicine they have for inflation. This prevents “irrational exuberance” into the year end.
Over the last several months, probably since June in fact, the narrative continually shifts to “the Fed doesn’t really mean it.”
Here McElligott does it again.
…this ‘threat of entrenched inflation’ story — to allow for their hawkish ‘higher for longer’ message to keep buying them time…
Words such as “threat” implies that it is not real. Words such as “buying time” implies that it is only a ruse.
It only takes a few days in this market for the narrative to shift right back to bullish.
The Fed was not communicating a bullish message. That did not happen.
But the market will find a way to re-frame it as bullish.
Wall Street wants to run it higher. I am not sure why. A good sell-off can be very profitable if played right. But somehow, they always revert back to the same thing.
We already know that Jerome can turn on a dime (December 2018)……and I am willing to place a bet on that happening again sometime in 2023.
Kind of like a dad who says he is going to ground their kid if they get home after 1am. Then, the kid gets home at 2am. The dad makes an exception but continues to repeat the rule- in a louder voice as if using a louder voice will offset the fact that he previously made an exception!! (I only did that a few times 🙂 )
Thank goodness I have pretty much done nothing with my investments this year- if I had tried to time/predict, my accounts could easily be suffering from massive and unrecoverable realized (as opposed to bad unrealized) losses because there is no way I could have traded the market in 2022. Full disclosure- I am a “dinosaur”- as I still long for the days to return when I can use fundamental analysis to identify an undervalued stock!
I have a theory, but I have no data to back it up.
The theory is, that as wealth becomes more and more concentrated in the hands of the few, this in itself will tend to suppress market volatility.
For the simple reason that the wealthy don’t need the money, and they don’t react to external events, the same way that less wealthy people would.
Right now, I think about 50% of all stocks are owned by about 1% of the people.
Now this 1%, they don’t care about a recession. They are quite happy to let the money sit there, perhaps for two or three years, until we get to the next easing cycle. They simply won’t sell, under any circumstances. Doesn’t matter if the stock market gets cut in half. They’re not selling. Only death itself, through inheritance, creates any need to sell.
No selling = reduced volatility.
We used to have the Bernanke put. Now we have the 1% put.
The next easing cycle is going to start a lot quicker than in 2-3 years
Completely with you on that one!