E Market Briefing For Friday, June 18

Markets dislike uncertainty, historically. However current confusion or even rancor (towards the Chairman) over what the Fed will do or when they will do it, dominates discussion without grasping an understanding of how variable the conditions over the next year or so will be. You only get one re-opening or revival thrust; then it becomes more micro-management; and unless we really to suffer another huge wave of Covid (Heaven forbid); it won't repeat.

So that means that the CPI was unduly impacted by sudden thrusts of returns by certain industries; like tourism, hotels, airlines and restaurants and regular (brick & mortar) stores too. That kind of impact is non-recurring; but can sort of become steady growth if things stay on-course. Similarly costs of housing materials (like lumber) soared and are coming off their highs; so to a degree it is correct that some aspects will be 'transitory'. But wage pressure won't abate so I think the Fed recognizes there are some aspects that become ingrained.

If anything, Fed Chairman Powell did a stellar job of threading the needle on a slew of alternatives; and the willingness of the Fed to employ their tools 'if and as needed'. General uncertainty has been with us for the entirety of these 15 months of Covid and recovery; and that didn't prevent a plunge early last year or the comeback from 'The Inger Bottom' of March 23rd 2020.

The point being that the psychology of the market prefers a Fed that isn't too rigid; that's open-minded and willing to adjust. And that's what you have with a Chairman Powell at the helm. At the same time it was necessary to inject the huge liquidity last year; and makes no sense (listen to me Janet Yellen) to call for trillions more being thrown at the economy; outside of just infrastructure.

The 10-year has been going lower in part because traders think the Fed must be on hold; and in a sense the Fed also (just listen to the range of topics Fed Chair Powell broached, which was unusual and definitely not in 'Fed-speak') it seems is uncertain about 2022 and 2023, and they should be.

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This is an excerpt from Gene Inger's Daily Briefing, which is distributed nightly and typically includes one or two videos as well as charts and analysis. You can subscribe more

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William K. 1 month ago Member's comment

Probably "the market" is almost as confused about what the Fed will do next as "the fed" itself is confused.