During 2022 – the market obsessed over one thing – inflation. How high? How fast? And for how long? That concern is now largely behind us… however investor’s gaze is about to pivot from CPI worries to employment (specifically entrenched wage growth). If Powell is to be successful in winning the war against structurally entrenched inflation – he needs to bring wage growth down to 2%. Today that figure remains above 5.0%. That’s going to take time… and is the market potentially caught offside?
Is the Market Fighting the Fed?
The market and the Fed are at odds. In short, equities don’t believe what Powell is saying. The market is betting the Fed is wrong and will be cutting rates by the second half of 2023 – where the ‘dot plot’ of 5.0% is a dream. My take: choose to fight the Fed at your own peril. Typically it doesn’t work out well.
A Textbook Reversal
We’ve experienced a 16% rally off the October lows. And it’s happened in short time. Why? Traders see a far more dovish Fed on much lower inflation / coupled with a mild recession. I’m not buying it… not yet.
Powell Pop… Don’t Get Too Excited
The market is popping on the hope of a more dovish Fed going forward. Chairman Jay Powell gave the market ‘hope’ by saying the Fed is likely to moderate the pace of hikes. But is that ‘really’ that bullish?
For a full list of posts from 2017…