What constitutes ‘sufficiently restrictive’ – a takeaway question remaining, about FOMC policy. The Fed will tend to stay at such levels (holding the curve up) as long as necessary, and historically that’s past the time to shift course.Hard to say if how the Jobs levels evolve will shape Fed policy, they tend just to set policy and hope the outcome will be satisfactory. They are not reliable, based on the past in either direction, except in ’emergency’ situations, where a shift on a dime (like March of 2020) has an immediate impact on markets.
Chairman Powell emphasized the ‘forward’ action by reviewing what happens, which frankly, sounds like continued ‘data dependency’. He noted improved or balanced supply-demand situations in the Labor field, with slightly lower wage pressures (could have fooled me looking at the UAW deals). Overall believes the economy expanded well above expectations, but with moderated inflation.Despite inflation, he believes expectations remain ‘well anchored’ (interpret as you will, honest I thought Powell looked ‘grayer’, more worried or maybe they didn’t have a makeup artist touch-him-up before appearing on camera.. I’m a bit serious as he looked worried… so did the FBI Director yesterday candidly).Of course the Chairman talked about ‘financial conditions tightening’, they’re at least proceeding ‘carefully’ (ah ha, but QT persists, albeit it lighter levels). It is the cumulative effect of previous tightening that can have a ‘lag’ effect, that I will focus on, as it sort of acknowledges an historic tardiness of policy shifting.
Market ‘X’-ray: The S&P continues to ‘wallow’ around the 200-Day Moving Average, as it more-or-less has for some time. Rallies occur but have been unsustainable. Now the ‘heaviest’ seasonal part of the year is behind, but tax-shifts as well as geopolitical impacts loom (and one could weigh on stocks while the other impact either way). So variable persist, the Fed stands aside and even they candidly expressed uncertainty.Powell is not confident ‘policy’ is sufficiently restrictive, but we expected he’d take that tone. Financial conditions tightening is stating the obvious (housing for-instance), but at least there’s a Fed nod to how it’s impacting consumers. It’s clear to everyone that the Bond market did their work for them, and they’re keeping a ‘bias’ to thinking about hikes, but backed-off calling it a real ‘bias’.
Risks are ‘balanced’, which is what he really want to convey I think, less than a ‘victory lap’, but close to the so-called ‘softish’ landing we’ve had in mind. If there’s a ‘sea change’, it’s something I’ve mentioned before, and Jamie Dimon mentioned today, too many years of artificially low interest rates (promulgated future inflation as happened for years). I refer to this having been a contrived effort (fiscal + monetary policy) to repay debt with ‘depreciated greenbacks’.(I should note Jamie’s bank is ‘trimming the sails’ again, reduced lending. And note reference to U.S. infrastructure being like ‘barnacles’ vs. global facilities. He’s referring to antiquated technology systems, like our FAA still uses. Also note, lest we forget: 600,000 casualties in Ukraine, under nuclear blackmail. It is his view: world’s not safe for democracy this century unless Ukraine wins.)
Bottom-line: Monetary policy remains restrictive (glad the Fed realizes it and if I seem upset with them, yup.. last correct move was easing in midst of the pandemic…while keeping rates ‘too low for too long’ allowed what happened in the wake of Covid, beyond allowing recovery. ‘Broad’ support is his goal but means asking for a majority of FOMC voting members to see ‘real’ conditions.I’m not feeling heroic about this market, few are. You still have overpriced big caps, suppressed small-caps, general bifurcation, and a process of extracting from what I thought was ‘sort of’ a washout over the previous two weeks. But it all depends on geopolitics (and mostly keeping Oil price rises contained) at this point, while seasonals are slowly getting more favorable, and the Fed is a bit less worrisome for now.More By This Author: Market Briefing For Monday, Oct. 30thMarket Briefing For Thursday, October 26 Market Briefing For Wednesday, Oct. 25
