Reflexivity is right at the current core of forward-thinking discussions of Fed policies. The ability of the S&P to hold together (rates stable too) during this time of turbulence (sort of rangebound trading) relates to this reflexivity.. as to viewing the Fed's rate 'cut' decision still way down the road, but for which the market is starting to front-run. And Powell played it wisely... both ways today.

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Oddly, an early pivot could have an unintended side-effect, essentially easing financial conditions prematurely, making rate cuts sooner 'less' likely since the Fed needs to contain inflation first and foremost as a priority. However as we suspect inflation peaked in the last few weeks (led by Oil's thrust to around 120/bbl and a dip before firming anew), as well as most key Transportation costs (impacting commodity deliveries and so on.. like 'shipping containers' and trucking charges), some of the backdrop of a Fed with 'angst' due to their overstaying the 'transitory' nonsense about prices, was suspected to ease. It's part of why as 'angst eases', you get these slightly less-hawkish comments such as today's Powell remarks, and the S&P relief rally I'd been speaking of.

Also helpful to Powell's approach is the expected Housing slide. It's got more to go of course. Mortgage demand is lower, cooling Housing (something I've anticipated for months), and warned in-particular against chasing high prices in Florida, California or New York. It's certainly not a buyers-market as yet, but it's moving in that direction. And Western and Central Florida are booming, partially as the image (mostly over-rated) of casual lifestyles evaporates to a great extent in South Florida, given price levels and heavy congestion there.

It is clear Miami is becoming a financial center (it's been the capital of Latin America in a sense for years), but too much high-rise construction, flooding is again raised as a concern, and securing it against high tides is claimed by the local authorities, but can't really be effectively done at any price due to what is called the Florida aquifer and basic underlying 'porous' limestone formations. I sort of suspect not just a rollover but problems for developers overly invested in downtown Miami construction, a separate issue from Miami Beach condos.

This Housing rollover along with some Retail and Fuel prices (commodities as well in some areas) tempers the Fed's zeal, even if they wish to impress only themselves as far as having impact of significance on the inflation pace itself. Of course the Fed looks at this on a National basis, but inflation in general by no means is local, but has contributed to some regional populations shifts too.

In-sum: 

The Russian-gas-oil stranglehold on Europe set the stage for lower economic guidance by the ECB, now the IMF, and in-line with our view for a period of months regarding stagflation there, and early signs of it here. What this meant was a restraint on monetary policy hawkishness as to guidance, even if very near-term hikes by ECB and the Fed, were sort of set-in-stone.

I think the Fed finally learned that they were taking action 'too late, too slowly, and risky staying unfriendly for too long'. That's why the S&P held together 'of late', believing that the silver lining of this 75 bp hike was a limitation of their late-blooming zealotry ... even as they fight inflation via ongoing increases in their target rate. Inflation will come down, it will take forever if they really gun for 2% inflation rates, and the Fed still executes targeting perhaps too harshly.

The Fed noted the 'war' and some domestic slowing, in-line with most Street calls. IE: more rate hikes, but backing-off of the extent or magnitude of hikes. Much milder inflation as we've discussed, primarily coming off of Oil easing. Fiscal policy was too expansive for too long, and the 'war' also contributed in the form of 'bad luck timing' for the Fed, which (who knows if Russia intended it to coincide, but I doubt Putin is that creative with economic impact policy).

Analysts still talk of a doubling of rates from hear before the Fed is finished in this series, whereas I think we'll not see that much. I know why they say that, it would take such higher levels to attempt 'in theory' to keep pace but I doubt inflation will maintain it's torrid climb (likely already peaked as suspected last month), and we might even see Oil prices more stable (firm but not exorbitant levels foreseen) 'if' we finally get a ceasefire between Russia and Ukraine.

Bottom-line: the market's sort of ignoring what the Fed's doing, but the Fed's saying they don't want to punish the population (even as the real punishment was negative rates and too-easy money for too long before they got firmer, as was the basis of our warnings last year that they were behind-the-curve).

There was a little bit for everyone in the Fed statement, maybe the market is a bit misguided, but really there was a trading entry back in June and now most traders are wondering 'if' the market is figuring-out odds of a harder landing. It may be a low-growth scenario for a long period of time, and that's why relative low yields are staying. In-essence it's not disastrous but not comforting either.

Being nimble in the face of uncertainty is the take-home message from today and the Fed. Hence our ongoing call for 'turbulent times' and many variables. For now very pleased to hear 'data dependent' and the associated rally, a lot of which might also relate to the CHIPS Act and the new spending package.

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