Navigating the 'Fed fight' - is almost a bull-bear 'food fight', with investors so hungry for clarification on where inflation, which is determined more by public behavior than monetary policy, is going. The CPI on Tuesday was a bit tamer, and as we thought there was a short-covering rally that was sold into briskly.

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Mortgage rates down a percentage or so in points from their October high, are based on collapsing demand and the perception of what the Fed is going to be saying about the future more than 'the now'. Our expectation remains that Powell will 'straddle' his posture a bit by emphasizing fighting inflation (there's no reason his verbiage would retreat), but he can acknowledge influences on inflation that he can call extraneous (like war and so on).

Regardless, the peak inflation is behind even if aspects like 'services' seem a bit higher. This occurred in the wake of Oil pressing 120/bbl just as suggested and we continue believing the U.S. was the seller up there, while now was the undisclosed buyer in the recent phase of trading right around 70. The Floor in a sense proclaimed by President Trump as a level SPR would be replenished.

At least one money manager has been crying about the Fed missing the real problem.. which such analysts call DEFLATION. Well yes, I understand that a phase of disinflation will follow this past year's lagging Fed moves amid 'war', but believe a somewhat higher price levels for nearly everything becomes an instilled structural fact of life, as they won't claw back wages significantly. For that matter, most of the easing has been from Oil and diesel price declines.

In that respect China coming back online in 2023 should firm Oil demand. But in any event, absurd opposition to Fed tightening is generally a red flag when spewed by an investment fund manager, and we tend to understand but ignor that. We agree (and have often said) that the Fed handled thing belatedly for a long time, but now such comments (which were in the media) really means that moaning manager or similar analyst is likely loaded to the gills with either now-over pandemic plays or huge big-caps, unlikely to be the best gainers in 2023. We see it more of an 'active management' time.

One thing that may contribute to the 'moaning' my (normally optimistic) types of managers, could be their excessive involvement with 'crypto currency' and lack of willingness by Wall Street to discuss the involvement of major firms. In a cynical way I might ask why Bankman-Fried was arrested a day before his intended Congressional testimony, presuming he was going to show up. Any curiosity if he might have been asked about relationships with personages?

In-sum: 

Markets got 'too hot on cool' inflation data, as CPI came-in a bit less aggressive, and as we anticipated. We also looked for selling thereafter if we got a big surge (and it was initially huge), as S&P goes on-hold ahead of Fed rate decisions and the all-important news conference thereafter Wednesday.

Increasingly weaker inflationary readings may not be sufficient to get the Fed to 'back-off' at least very much, so there is what's called 'wet blanket' risk if in tomorrow's 'news conference' emphasizes continuation of tight credit. Again, it isn't a great reason to be optimistic, but negativity is nearly unanimous. So it's sort of a 'brace yourselves' moment, with risk of a sharp move either way. For that matter Powell knows this, and might try to straddle matters accordingly.

There's no change from my Monday comments about both the response to CPI, pullback, and then possibly upside resumption as or after dust settles on the Fed's (presumed 50 bp) hike on Wednesday.

Ultimately the Fed chills but at the same time there's 'earnings trend concern', but that impacts the big caps more than the already long-suppressed trying to stabilize or build a base for post-tax-selling rebounds, to varying degrees. Of course there are a handful of such lower-priced stocks that have done well so may consolidate a bit and then resume uptrends if fundamentals remain solid.

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