Highly stubborn describes Chairman Powell. While he acknowledged very grudgingly several 'surprises' on the upside and downside (perhaps only the Fed was surprised, the rest of us haven't been for the last year or more, with either the excessively elongated period of low effective negative rates and of course now the belief that the Fed can do as much as they proclaim ideal).

Pixabay

I was pleased he referenced 'as soon as this upcoming meeting' for ending at least the pace of rate increases, sufficient excuse for the dramatic rebound. I thought yesterday was just an 'absence of bids' and that we could get 'relief'.

Despite the tighter progress, Powell acknowledges inflation hasn't declined a lot. Well, that's what we've been saying for months... that Oil, the War and lots more contributed to prices (starting with wages that can't avoid pass-through) than simply rates policy. This is the perfect spot for a technical S&P breakout, dovetails nicely with my view of weakness having been for buying not selling.

At least Powell noted 'goods pricing' can come down in forward months, but while that's appropriate for him to say, he omitted the variable about China's supply-chain issues, perhaps intentionally. He did mention Housing declines, especially in 'Rents', which is also fine except that investing in Housing makes not sense with regard to 'cash-on-cash' returns 'if' mortgages are utilized.

So if anything these overall higher rates should help improve rental prices not just houses or condos for sale. Properties for sale will remain tight as relates to anyone with a low-interest rate loan or free-and-clear property. Housing is a risk contributing to concerns about 2023, as it should remain very defensive.

The Chairman did talk about the labor pool and retirements, saying retirees at this point are not returning to work (well, many have opted 'not' to retire at all). He attributed part of that trend to avoiding crowds and congested work areas, presumably related to COVID and related concerns. 'Long COVID' is a condition that is understated everywhere (might even have accelerated heart issues for me, something the doctors had no clue about when I inquired), and lingers. (It seems in my case the answer was: no idea but we'll fix the ticker issues. For sure I thought of my 100 year old Edison stock ticker, but he meant 'heart':) )

Wage growth continues above targets, but how does Powell think that means anything related to their targets. If anything monetary policy triggered demand for higher wages, and contributed to a 'mini' wage-price spiral after pandemic.

In-sum: 

Holding monetary policy as fairly restrictive levels for some time was the heart of Chairman Powell's comments, though he hints at a slower pace. So more or less that was inline with speculation about his 'tone' in the speech.

The Chairman thinks wage increases will be important going forward, but he's not attributing 'their' actions as a contributing factor. He even said the Fed has expectations for higher wages. So this comes back to what I've contended all year: the Fed wants to repay Debt with devalued or depreciated Greenbacks, and doesn't care about undermining the buying power of Senior Citizens. (The nominal increases in Social Security are meaningless to the vast majority.)

'Moderation' in the pace of hikes was the desired expectation, and delivered. The markets are not really hearing a lower pace, which has been discussed at least for a couple weeks. But the short-side got crowded again, and this 'relief' worked, and probably would have even if the Chairman's tone varied a bit.

Price stability (we agree with Powell) is very important. Too bad they're really not addressing that, or at least not recognizing the extraneous influences from a global upheaval as well as the Fed's own behavior, that contributed to much instability. It's too early to suggest 'more of the same' from the Fed will work.

The Fed Chairman's 'waiting for more' evidence inflation's sort of declining. Of course he is. The path ahead does remain uncertain, and wages and prices will be at a higher plateau for years to come (we say that and he's implying it with his 'era' statements). The Fed wants to 'slow growth and thus aggregate demand'. So they are now going to fight the last war and defer the pivot to lower rates too long...probably. Or an event will interlude moving them.

In the Q&A, finally, after a question from a Hong Kong reporter, the Chairman acknowledged the implications on supply-chains from disruptions in China..

Powell has signaled smaller rate hikes ahead while working for price stability. It is generally what was anticipated, along with the 'relief rally' for the S&P.

More By This Author:

Market Briefing For Wednesday, Nov. 30
Market Briefing For Tuesday, Nov. 29
Market Briefing For Monday, Nov. 28