Jerome Powell speech on interest rates indicates renewed hawkishness; but is the Fed behind the curve again, as they were in taking up the inflation fighting mantle?
It will be kind of important to correctly answer that question, don’t you think? The Jerome Powell speech is wigging out the market today as the Fed Chair signals full (hawkish) speed ahead on interest rates. You can click the graphic to read the article in which Chairman Powell says the rate of interest rate hikes is likely to increase more than the eggheads, err, Fed policymakers had previously expected.
Perhaps you recall the “transitory inflation” story that the Fed stuck to until well after they should have begun actively fighting inflation. Perhaps you will recall this chart I made over a year ago indicating that the Fed needed to get with the (inflation fighting) program as the 2 year Treasury bond yield was utterly demanding they get off the “transitory inflation” canard and get with reality.
Okay, so today started out with a little bit of disinflationary signaling (Treasury bonds were positive) and then the Fed Chairman, who we proved in real time (ref. chart and posts of the time) to be tardy to hawk, opened his yap. The Jerome Powell speech today is the mirror opposite of those “transitory” jawbones of yore. The important question now is does he know WTF he is talking about now? Because he sure didn’t back then.
For me what works best is to have a constant sense of humor – even if it is bemused humor – about the markets and especially about the micromanaging eggheads making the monetary policy that is behind the markets. Today Mr. Powell introduces a bit more humor. Here is the same chart as it exists today (with the 3 month T-bill yield added for good measure), humorously showing the Fed getting jerked ever higher by the bond market and the “transitory inflation” the Fed created, right into the same type of trap that freed the bear on two previous occasions.
But I’ll tell you what is not going to be funny. When the myopic, tardy Fed is forced once again to overshoot as they historically have per the chart above. No, that is not going to be funny. What it is going to be is disastrous. But if we can time it right careers could be made, because it’s a setup for an impulsive move (when the current bear market rally ends, either sooner or later). And the impulse is not going to be up. Sorry for the reality check dear ‘happy days are here again!’ FOMOs.
The bear market rally of today is, in my opinion, simply addressing the fact that the moderate 2022 bear cycle jumped the gun on the bond market/Fed signals above, which usually diverge and top out before the real bear gets going.
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