Mish analysis of CME Fedwatch futures positioning data.Yesterday, some analysts described the FOMC meeting as hawkish but that was not my interpretation. Analysis of futures positioning suggests the same thing.Fed’s Bias is Hold, Not Hike
At the FOMC press conference yesterday, Powell stated “The Fed is not thinking about rate cuts right now at all.”That seems hawkish, but the market perceived otherwise, and I concluded the same thing yesterday as well.Look at the huge stock market jump and collapsing bond yields today as further evidence.Hawkish Interest Rate Hold by the Fed?Yesterday, I commented A Hawkish Interest Rate Hold by the Fed or Something Else?

Reporters kept trying to get the Fed to commit to more hikes or more cuts with a barrage of similar questions, but Powell ducked them with variations along the lines of significant tightening has taken place and we will wait and see.

Hold Bias, Not a Tightening Bias

I watched the entire press conference and do not see a tightening bias.

Exactly

The actual unstated bias is the Fed will make excuses to do whatever it wants until what it does blows sky high.

There is a stated bias and an unstated bias.

Adding to my post. https://t.co/UgVlx9MVl6

— Mike “Mish” Shedlock (@MishGEA) November 2, 2023

I see a stated hold bias.

The market interpreted Powell’s repeated mentions of significant tightening already as a dovish statement.Unstated BiasThere is always a stated bias and an unstated bias. The unstated bias is the Fed will do whatever it wants and make excuses for it. If the market does not react the way the Fed wants, a barrage of Fed governors make speeches hoping to clarify.Fed Uncertainty PrincipleDoing what it wants regardless of data is the essence of my 2008 post on The Fed Uncertainty Principle.

The Observer Affects The Observed

The Fed, in conjunction with all the players watching the Fed, distorts the economic picture. I liken this to Heisenberg’s Uncertainty Principle where observation of a subatomic particle changes the ability to measure it accurately.

The Fed, by its very existence, alters the economic horizon. Compounding the problem are all the eyes on the Fed attempting to game the system.

Fed Uncertainty Principle: The fed, by its very existence, has completely distorted the market via self-reinforcing observer/participant feedback loops. Thus, it is fatally flawed logic to suggest the Fed is simply following the market, therefore the market is to blame for the Fed’s actions. There would not be a Fed in a free market, and by implication, there would not be observer/participant feedback loops either.

Corollary Number One: The Fed has no idea where interest rates should be. Only a free market does. The Fed will be disingenuous about what it knows (nothing of use) and doesn’t know (much more than it wants to admit), particularly in times of economic stress.

Corollary Number Two: The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.

Corollary Number Three: Don’t expect the Fed to learn from past mistakes. Instead, expect the Fed to repeat them with bigger and bigger doses of exactly what created the initial problem.

Corollary Number Four: The Fed simply does not care whether its actions are illegal or not. The Fed is operating under the principle that it’s easier to get forgiveness than permission. And forgiveness is just another means to the desired power grab it is seeking.

The Fed has blown several major asset bubbles and wanted to make up for lack of prior inflation when it does not even know what inflation in.Now the Fed gives forward guidance on their thinking and all the banks and hedge funds front run the guidance which explains the collapse of Silicon Valley Bank.For discussion, please see The Fed Admits a Mistake in Collapse of SVB, Seeks More Power AnywayNeed for Higher Inflation

Seeing a lot of inflation-related tweets…

Don’t forget to thank the folks at the @federalreserve who’ve been trying for years to spike your cost of living. pic.twitter.com/W67bBgr8Wq

— Rudy Havenstein, Senior Markets Commentator. (@RudyHavenstein) July 24, 2021
Fed bias led to massive QE that fueled inflation the Fed could not see. Nor could the Fed see the inflationary aspect of three massive rounds of stimulus. The Fed failed to see huge inflation in front of its nose because it refused to see it.Right or wrong, the Fed does not want to either hike or cut. That may be the right policy or not, but it appears to be both the stated bias and the unstated bias.Despite preaching data dependence, the Fed has bias dependence. If wrong, it’s likely to be very wrong.How the Fed Destroyed the Housing Market and Created Inflation in PicturesThe Fed does not consider housing bubbles or asset bubbles as inflation. I explained the result in How the Fed Destroyed the Housing Market and Created Inflation in PicturesHolding clear biases is a huge part of the Fed’s problem. But an even bigger problem is the Fed does not have a clear understanding of what inflation is.The results speak for themselves.More By This Author:Factory Orders Jump A Greater Than Expected 2.8 Percent A Hawkish Interest Rate Hold By The Fed Or Something Else? Fed Holds Rates Steady, Issues Say Nothing Boilerplate Statement