Offsetting influences are factors which influence the superficially neutral policies of the Fed. By maintaining 'emergency' near-zero rates after the 'emergency', it's soothing to markets, but actually increases certain concerns down-the-line.

Pexels

Certainly the FOMC wanted to keep their 'options open' for degree of tapering as well as 'actual' rate hikes, and that might also relate to a bit of politics since we're approaching the time for reappointment (or not) of the Fed Chairman. It might be that just now is no time to upset the apple cart, even if those apples, if they keep too easy for too long, will be 'cored' before the next year ends.

In a sense that's a favorable economic outlook, which is what could compel a more hawkish Fed, beyond the only slightly 'tweaked' tapering remarks today. They also 'tweaked' the reference of transitory to will 'resume being transitory' (hah they won't admit prices won't come down and that means 'enduring').

The Fed is already 'behind the Curve', finally tapering but again it's not nearly enough to lean against inflation, which is absolutely not merely transitory. So they sort of recognize that but are frozen in 'relative' inaction. They're so far in the rear of action, that they're 'finally starting', but it's way overdue since U.S. consumers have shown their ability to snap-back even though the pandemic is still with us, and they ought to be increasing rates so as to not be stimulating the economy (however that's not very likely given how this deliberate slowness evolves).

It is political too, and the Fed is boxed-in, not wanting to rock-the-boat (though it leaks, and we don't have a Paul Volcker when we need a guy like that). I'm not unhappy with Powell, he set-us up for an 'Inger Bottom' call last year of course. But now he's playing politics, since early 2020 'was' a big emergency, now really is not one at all. And once we get 'really effective' vaccines, drugs and fast tests that are affordable (into the American market) life will roar and the Fed will be really behind the curve.

Speaking of that, there is going to be growing concern not only about sluggish approval processes at FDA, but (with Sorrento the perfect example) new fast tests approved for sale (Covi-Stix already approved in Mexico, the EU and as of today in Brazil) reflects the disorganization or inappropriate influences from one or two regulators who should not be lobbied or influenced by big pharma.

Executive summary:

• Fed did not change rates and did begin tapering (reduction of purchases), while remaining 'attentive' to risks, as Chairman Powell put it today.

• What he didn't say was that we do not have an 'emergency' which is the only reason to have lowered rates so much in the first place.

• The ECB said they would defer their version of tapering until March, so in that way the U.S. Fed is a bit less lax, but I wouldn't call it really hawkish.

• Constrains in the supply-chain are not factors (or shouldn't be) since the aggregate demand remained strong.

• The Chairman acknowledges economic conditions should pick-up as we get past the COVID emergency, no kidding, that's why tapering essential.

• Powell talked about bottlenecks and supply disruptions as a cause for the faster inflation (more than anticipated, no kidding), so he blames that.

• Powell said he would 'use tools to preserve price stability' .. 'if' .. prices went up more than the 2% target, sorry (hello) what planet is this.

• The question is whether hiking rates 10 times over the next 2 years would be sufficient to get inflation 'down' to something like 2% and it might not.

• (That was slightly sarcastic, but I doubt we'll have any significant decline in the inflation rate until well after the supply-chain crunch is resolved).

• On stocks, as I mentioned earlier, Sorrento's (SRNE) Covi-Stix was approved just today in Brazil, and they addressed it better this time by stating the name of the distributor (both a major distributor and the State testing network).

• A number of South American countries will rubber-stamp approval based on Brazil doing so, even more so than Mexico, so this is rather pertinent.

• There are reports that Canada has one or two applicants ahead of SRNE for the test approval there, so that's pending as well, EU already has a go but the 'press release' wasn't as clear as the one regarding Brazil (maybe Sorrento is finally learning what investors need to hear in such releases).

• A 'for-instance' will explain why I care much about Covi-Stix selling in a solid way: if we have, say a handful of countries marketing possibly 10-20 Million units or over a Billion in revenue (a month?), sure that is optimistic, but even if margins are low, it would be a forerunner of more.

• The stock rallied and sold-off as typically happens on news, but this time they caught the shorts a bit and brought SRNE back up in the afternoon.

• Also today, AEHR Test Systems (AEHR) announced a 7 million or so additional contract/sale to a customer who signed a 16 million deal a couple months ago, because that customer already expects a surge in demand.

• This positions AEHR well of course (they already are), and it briefly rallied above 25 (which I thought it would edge up to this week), then retreated in a healthy form as it almost always does, before resuming upside.

• On COVID, the media is reluctant to report two things: China right now has the widest spread of COVID cases since the initial Wuhan wave, and second, there are reports that Colorado is being swamped with new cases now.

• Wednesday was proof of my old emphasis: 'don't fight the Fed', and by the way that was at the heart of calling the March 23rd 2020 low (as I'd termed 'Inger Bottom' since that very day).

• Tapering is all to worry about at the moment, or at least that's the mood the Fed wishes to convey, so 'don't fight the Fed' still holds, but jitters will reappear and lookout when the Fed does move (or the economy really gets stronger and not from inflation-based rising revenues).

• I'm not saying an extension here is a 'sucker rally', but it's a 'relief rally', in that the Fed didn't do anything more draconian.

• Finally Oil settled-back today, and again I'm not surprised, drawdowns of course being cited, but it's not random and sort of seasonally normal, like I have said, positive overall, but 80's was enough, might be in a range of possibly 75-85 (I thought the 100+ talk was ridiculous).

• Of course you hear stories of China demand slowing (true) and Iran soon to be back online (they were never off to some countries and should not be allowed to sell to the EU or US no matter what nuclear deal is done.. unless of course it's after a 'revolution' ridding Persia of mullah radicals).

• I prefer not focusing on a break of the steep rising bottoms trend as many factors impact Oil, so it's not a linear relationship some would like it to be with technicals, if the screws are turned on OPEC+ that's part of it, but as I've said 'shame' on the U.S. (restricting Oil 'here' while) extolling Saudi's for more production, which we should never buy from the Middle East (OIL, BNO).

In-sum: 

The Fed thinks the timing of everything is uncertain, although relief on the supply-crunch side should be alleviated by Q2 or Q3 of 2022.

Powell feels maximum employment is possibly by next Summer, hardly likely in my opinion, although high enough wages tend to attract more willing, if not the most qualified, workers. Too much stimulus dissuades the less-energetic.

The Chairman acknowledges a possible 'wage-price spiral' looms, while very carefully saying he doesn't see such pressures emerging yet (we do though). The risk of inflation is indeed greater than the benefit of more Fed stimulus or as they say 'accommodation'. It's not 'should inflation become a risk', it's risky now, because typically prices don't retreat much (especially wages) once up.