Happy Belated Father's Day!
As I expected, the Fed took the opportunity that the inflation numbers presented and raised rates by 75bps. During Fed Chairman Powell’s speech, he mentioned how he wanted to “moderate demand” because it was too high. This is something I have been talking a lot about: the Wealth Effect (recap: when asset prices go up, people feel wealthy and spend more and vice versa). The Fed believes that consumer spending is causing prices to increase (high demand with lower supply = price increase) and wants to “moderate” that demand. A crashing stock market and increasing fear are 2 ways to possibly do that. I’m not sure that a surprise 75bp hike falls under the “soft landing” lingo that I doubt will be used anymore.
Powell went on to discuss how healthy the economy is, although I have a tough time believing that (it’s funny how many forget we had a 1.4% contraction in GDP during Q1 2022). He also stated, “We’re not trying to reduce a recession now.” That’s because the Fed acts with reactions, never preventions. The problem at hand is inflation, so they will raise rates to fight that. Those increased rates will be what many blame the next recession on. The Fed will cut rates to prevent a recession. Reactionary and can gets kicked down the road for a larger future economic implosion.
One thing is still for certain. All eyes will be on next month’s inflation/CPI report. Fed is expected to increase by 50bps, but if the report comes in high, I’ll make the case for a 75-100bp hike.
There is no Fed meeting in August as they will do their annual Jackson Hole gathering.
We get to hear a lot from Fed presidents this week, including St. Louis’s Bullard who is a known hawk. He starts and ends the week with speeches.
In The News
Monday
- St. Louis Fed President James Bullard Speaks
Tuesday
- Existing Home Sales
- Cleveland Fed President Loretta Mester Speaks
- Richmond Fed President Tom Barkin Speaks
Wednesday
- Fed Chair Powell testifies on monetary policy at Senate Banking Committee
- Chicago Fed President Evans Speaks
Thursday
- Initial and Continuing Jobless Claims
- Fed Chair Powell testifies on monetary policy at House Financial Services Committee
Friday
- St. Louis Fed President James Bullard Speaks
- 5 Year Inflation Expectations
- New Home Sales
- San Francisco Fed President Mary Daly Speaks
Chart Check (see above)
It is too difficult to try to analyze any technical analysis because in today’s environment everything is reliant on inflation data. The trend is down and we know the Fed’s playbook. They are not going to do anything novel, but rely on the data. Right now the data shows cause for increased rates. When that flips, we can place our bets accordingly.
Something to note is the increased volatility in the daily movement as traders/investors dissect every word of any report that is released.
I’m not floating rates, looking to lock as soon as possible. We will continue to get our breather days which if you’re looking to float a debt consolidation cash-out refi may be worth waiting for, but it’s too dangerous of a game for any purchase.
I expect higher rates for the next 3 months, but then things will start to get interesting. My long-term thesis has not changed.
Click HERE to stay current with the Fed’s meetings this year. You can also view the statements and minutes from previous meetings.
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