Fed Confronts Cash-Fueled Stock Melt-Up
"Cash is seemingly burning a hole in the pocket of investors again," Nomura's Charlie McElligott said Tuesday.
US equities notched additional gains following an as-expected CPI report seen as friendly to the Fed leaderships' preference for a pause at this week's policy gathering.
At this point, with stocks up 22% from the October lows, the Committee has to be cautious about the rekindled wealth effect. As discussed in "The August Risk"+, US households' stock gains in Q1 covered losses on prope
If they pause/skip in June the smartest approach for the FOMC is neutral. They need to preserver their optionality- and I am no hawk. Right now sentiment is very positive on stocks. It can keep going or turn on a dime. The Fed’s job is really 3 fold- to hit an inflation target/zone, maximize/stabilize employment, and keep the banking system safe and sound. The rest of the missions are very secondary, including the watching the stock market, monitoring commodity prices, interacting with other central banks etc. If the Fed achieves their main 3 objectives, the stock market will take care of itself.
by employing a hawkish pause Powell / FOMC are relying on a nuanced approach that today’s world seems incapable of understanding and appreciating (current H. readers / members notwithstanding), leading me to think that they should skip the skip, pause the pause, face the face, and raise another .25 with mostly same messaging as the last meeting, … then almost assuredly pause next month… plain and simple, no nuance required…plain english a plus…
Yeah, I mean… core inflation is 2.5X target, the unemployment rate was at a 70-year low in April, consumers still have ~20% more in cash than they did pre-pandemic according to bank executives, real Fed funds is just barely positive, stocks look like they want to make a run at new records and big-tech is up 36% in five months. As you say, there are all manner of nuanced cases one can make, but there’s also a case to be made for saying, “We’re raising rates because inflation is more than double our target and the economy is at full employment. There are no dots, no projections and we’re not doing a press conference. You’ll hear from us again late next month.”
This is my thoughts exactly, but better put. If tackling inflation is their mandate then they need to get the job done before they declare mission accomplished.
Hope so
The fed has given up the inflation fight since the bank failures. they just dont want to admit it
For me, the market leads economics, not the other way around….The lag time concept is important, but nobody knows what the lag time will be…If I was a fed governor, I would be concerned about commercial real estate and private equity…The cost of propping these up would be very high….