Parlor Game
"Markets and forecasters are now using two decimal points on the inflation data to decide if it's too hot or not," Morgan Stanley's Mike Wilson remarked, somewhat dryly, in a Monday note.
I don't know which "forecasters" Mike's referring to, and I'm anyway (and proudly) no forecaster, but I use four decimal points when I assess the relative temperature of the incoming inflation prints.
I'm just kidding. Not really, though. I do report the US inflation readings out to four decimals. In a sign o
Our Dear Leader is on to something here, no?
We mostly try to make sense of the unpredictable and even the unknowable. To justify. well, to justify our jobs.
No different than the wide pendulum swings from nutritional “experts” about whether eggs are beneficial or a massive health risk. (Mr Lucky may remember quite a number of those swings!)
Rate cut expectations were silly overwrought at the start of the year. Six, seven cuts in twelve months? Maybe those forecasts were assuming we’d be in the teeth of a stinging recession by now. Equally likely, market-implied rate trajectories then reflected some sort of trading strategy. And also likely that market-implied rate trajectory now also reflects some sort of trading strategy, just in the opposite direction.
I think the phenomenon you discuss has much to do with human psychology during times of change or transition. Essentially, people prefer not to change, given the mental gymnastics required to make adjustments; thus it’s difficult to let go of the past, particularly since we end up in an uncertain a no man’s land between the past and an unknown future. Yes, the collective market mindset is/was looking for any indication of the good old days, whether it was there or not, and hoping to go back to low rates. It’s very predictable ,if you read the change management literature
If you watch starling mumurations then read this article. Nothing about it is surprising at all. It all says to me that the crowd will always be moving around and if you do not see the crowd’s movements you are not seeing the crowd at all. In fact I would go on to say that without this behavior, modern financial markets would have no utility at all.