A funny thing happened on the way to the FOMC meeting…
There’s a writer for the Wall Street Journal named Nick Timiraos.
Some would say he’s the kind of guy the Fed would go to to leak something to the market before they actually announced it… if they did that.
For instance, if they were thinking of slowing the pace of their rate hike project but didn’t want to cause a panic with everyone charging back in the market all at once, a writer might suggest that senior Fed officials were making the case for caution where future interest rate hikes went…
Or he might write about a board member who’s been focusing on discussing the pace of future rate hikes at coming meetings…
See how that works?
Well it turns out Nick wrote just about exactly those two articles in October in the Journal. And for a couple weeks at least, it sounded like the Fed might be thinking it was time to take its foot off the gas. (Bear in mind, there’s a huge difference between a slow down, a pause and a pivot. But these days where the market is concerned, any kind of relief from the Fed’s uber-hawk attitude would be a welcome change.)
But Then… Something Happened
On October 27, the BEA reported that advance GDP for the third quarter came in at 2.6% growth — a number that can only be called robust given the previous two quarters!
Not only that, Core PCE — the Fed’s preferred measure of inflation — rose 5.1% in September (up from the 4.9% increase in August) versus the previous 12 months.
And the Employment Cost Index (ECI) — what it costs to employ a worker — rose 1.2% in Q3 (up 5% from a year ago).
Not one iota of good news where inflation goes…
Nick had to backstroke faster than Michael Phelps.
Heading into the FOMC meeting, he wrote another article saying that “cash-rich” (yeah, he used that word) consumers would likely mean higher rates for longer.
And another that suggested that even a slow down to a 50 basis point move would be considered very hawkish…
On November 2 Jay Powell came out and dropped the hammer on any near-term hopes of easing up. It was his usual…
“My colleagues and I are strongly committed to bringing inflation back down to our 2 percent goal.” …yada yada yada… “Today, the FOMC raised our policy interest rate by 75 basis points, and we continue to anticipate that ongoing increases will be appropriate.” …yada yada yada… “Restoring price stability will likely require maintaining a restrictive stance of policy for some time.” …yada yada yada… “We anticipate that ongoing increases in the target range for the federal funds rate will be appropriate.” and so on…
Now whether the Fed was trying to play some four-D chess to fine tune market expectations, I really don’t know. What I do know is after that last round of economic reports, they still have their hands full.
Bottom line… the Fed isn’t going to be accommodating the market with lower rates anytime soon.
Truth is, it could end up being the smartest thing they could do…
Make the trend your friend,
Bob Byrne
Editor, Streetlight Daily