FOMC Minutes: "Declines in the prices of oil and some other commodities could not be relied on as providing a basis for sustained lower inflation, as these prices could quickly rebound." https://t.co/AqEtIDD74W

— Nick Timiraos (@NickTimiraos) August 17, 2022

St. Louis Fed President James Bullard said he’s leaning towards favoring another 75 basis point rate rise next month

“I don’t really see why you want to drag out interest rate increases into next year.” https://t.co/JFrCq5tHWf

— Nick Timiraos (@NickTimiraos) August 18, 2022

Wall Street’s rally suggests investors think inflation will be transitory.

But the more that markets rally, the harder it is for the Fed to keep financial conditions tight.

“You need to keep financial conditions tight. That’s the whole point of this.” https://t.co/331gjv6Uin

— Nick Timiraos (@NickTimiraos) August 18, 2022

The rally off the June lows is premised on the following argument: Inflation is peaking; therefore the Fed will slow the pace of its rate hikes; which will ease the pressure on risk assets. But the market had some doubts about it last week in the wake of the Fed Minutes, comments by Fed Board Member James Bullard that he favors a 75-point hike in September and a front page article in Friday’s WSJ saying that the market is effectively betting that the Fed is bluffing.

Tick chart of last week's probability that the Fed hikes 75bps on Sept 21.

The market cannot decide if the Fed will hike 50bps or 75bps. A 75bps hike vacillates ~50% and never strays far from 50/50.

It SHOULD get clearer after Powell speaks this Friday in Jackson Hole. pic.twitter.com/aIMmi7HgdK

— Jim Bianco biancoresearch.eth (@biancoresearch) August 20, 2022

To be specific the market is hoping for a 50-point hike and scared of a 75-point hike in September. The September Fed Decision is therefore shaping up to be a doozy. Next week all eyes will be on Chairman Powell’s speech in Jackson Hole, WY at 10am EST Friday for any clues he might give about September.

Fed Chair Jay Powell is scheduled to give the opening remarks on the economic outlook on Friday, Aug. 26, at 10 am at the Kansas City Fed’s annual economic symposium in Jackson Hole, Wyoming, next week.

Will be live-streamed here: https://t.co/1avC7iAIhx pic.twitter.com/Ze364BghLp

— Nick Timiraos (@NickTimiraos) August 18, 2022

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