1/12
Macro musings - Fed plays safe as inflation figures roil on
The Fed uses two major tools to manage its narrative: threats and promises. Until Jackson Hole, Chair JP gave the impression that rates are at neutral and the fwd decision-making would be data-dependent
Macro musings - Fed plays safe as inflation figures roil on
The Fed uses two major tools to manage its narrative: threats and promises. Until Jackson Hole, Chair JP gave the impression that rates are at neutral and the fwd decision-making would be data-dependent
2/12
At Jackson Hole, he moved his goal posts to a level that he wonโt be pointed fingers at or criticized like the transitory talk on inflation.
Fed keeping rates close to zero for the last 9 yrs makes people think that the Fed is a dovish institution.
At Jackson Hole, he moved his goal posts to a level that he wonโt be pointed fingers at or criticized like the transitory talk on inflation.
Fed keeping rates close to zero for the last 9 yrs makes people think that the Fed is a dovish institution.
3/12
That is not true. But remember the Fed now is more of a consensus institution than at any other time than during the Volcker era or the Greenspan era.
It is just that they overdo things in both directions and when things go wrong they try to be serious firefighters.
That is not true. But remember the Fed now is more of a consensus institution than at any other time than during the Volcker era or the Greenspan era.
It is just that they overdo things in both directions and when things go wrong they try to be serious firefighters.
4/12
What the Fed really wants to achieve is to follow a path of least embarrassment. They were wrong about inflation initially and they were embarrassed. They just donโt want to make the same mistake again. So they decided to overdo it, which is what is happening now.
What the Fed really wants to achieve is to follow a path of least embarrassment. They were wrong about inflation initially and they were embarrassed. They just donโt want to make the same mistake again. So they decided to overdo it, which is what is happening now.
5/12
So, all the volatility in stocks is on account of this. I do think it is very unlikely we will make new lows for the year in stocks and we may not make new highs for the year either. I will give you a good reason why new lows may not happen but never rule out a first time.
So, all the volatility in stocks is on account of this. I do think it is very unlikely we will make new lows for the year in stocks and we may not make new highs for the year either. I will give you a good reason why new lows may not happen but never rule out a first time.
6/12
The latest bear market rally marked a 50% recovery from the S&P 500 previous highs in January. Whenever this happened in the past 10 bear markets over seven decades it has signaled the โreal bottomโ for the markets. Let me explain.
The latest bear market rally marked a 50% recovery from the S&P 500 previous highs in January. Whenever this happened in the past 10 bear markets over seven decades it has signaled the โreal bottomโ for the markets. Let me explain.
7/12
Stocks regained more than half their overall losses on Aug 12. Take a look at the charts. From June 16 to August 16 the index has moved up 17%. and that really is equivalent to 57% of the overall bear market loss.
Stocks regained more than half their overall losses on Aug 12. Take a look at the charts. From June 16 to August 16 the index has moved up 17%. and that really is equivalent to 57% of the overall bear market loss.
8/12
It never means that we will still continue to get a one-way run up from here and there is every chance this so-called โinfallibleโ indicator can fail eventually. But a 10 for 10 track record for over 70 years is something not to be ignored.
It never means that we will still continue to get a one-way run up from here and there is every chance this so-called โinfallibleโ indicator can fail eventually. But a 10 for 10 track record for over 70 years is something not to be ignored.
9/12
For the data-dependent Fed, the August employment report released yesterday should be a bit comforting. The unemployment ticked up and hours worked ticked down. The monthly change in wages was modest. All this points to a rather moderating employment situation.
For the data-dependent Fed, the August employment report released yesterday should be a bit comforting. The unemployment ticked up and hours worked ticked down. The monthly change in wages was modest. All this points to a rather moderating employment situation.
10/12
The next major data release will be on the 13th Sep when we will get the August inflation data and I firmly believe that should be on the decline given the fall in oil prices, particularly for the month of August.
The next major data release will be on the 13th Sep when we will get the August inflation data and I firmly believe that should be on the decline given the fall in oil prices, particularly for the month of August.
11/12
The next major decision on interest rates by the Fed will be on Sep 21st. With a tough-talking Fed and a softening inflation outlook, my hunch is Fed will do less than what the market is pricing in now.
The next major decision on interest rates by the Fed will be on Sep 21st. With a tough-talking Fed and a softening inflation outlook, my hunch is Fed will do less than what the market is pricing in now.
12/12
A further catalyst to this rate cycle ending soon is what is happening in Europe now. The western world and the rest of Europe think that they can starve Putin of revenue while Putin thinks he can starve Europe of energy, particularly Germany.
A further catalyst to this rate cycle ending soon is what is happening in Europe now. The western world and the rest of Europe think that they can starve Putin of revenue while Putin thinks he can starve Europe of energy, particularly Germany.
A bit late but here is my commentary on unfolding macro situation @IronyMeter @saketvaani @Vineet_invstor @anishteli @VohiCapital @Finstor85
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