Zero Hedge leaped on the opportunity today in one of its lead headlines to declare the Fed’s FOMC members “Signal Major Dovish Pivot.” Then, in the body of the story it jumped into the water all the way over its head to declare outright, as if it is now a fact, “Powell pivoted.” ZH has been predicting the Fed pivot was imminent for, at least, a year and half now, so they were eager to declare victory as if a year and half of waiting for a turn just to finally have one forecast but not executed is a pivot!
The only problem is Powell didn’t actually pivot. The Fed HELD. Interest rate policy did not change up or down at all. However, Powell did deeply inhale the market’s lust for greed and fed stock investors and bond investors exactly the hallucinogenic narcotic they have been desperately hoping for—a Fed-sponsored narrative of a coming change to looser financial policy—completely killing the Dow’s bear market by any measure, sending it up more than 500 points to a new record high.
Other indices will likely follow to new records of their own by drinking the Powell Kool Aid® because, on the surface of his words, it doesn’t appear there is any bad news between the lines that will bring the usual day-after hangover that happens after FOMC meetings, where we see the market leap on the headlines and then digest the details and fall the next day.
I confess, however, I have not had time to digest the details myself today, and this indigestible mess of a flip-flop in words by Powell is going to take a lot of digging and thinking, so my report on what really happened will have to come in a “Deeper Dive” as this throws a complicated twist in everything.
I certainly don’t mean to imply Powell has done what I said he would not do and pivoted, as Zero Hedge is anxious to claim based on their belief that Powell would weasel out. Yes, his words were weasel words. The man sounded like he was giving a weasel mating whistle, but there is a big difference between predicting you will be doing something a few months down the road and actually doing a pivot — as big a difference as in actually pivoting in the middle of a basketball game in a critical play versus telling someone that your next moves will include a pivot someday if things go a certain way.
For now, let me make a few quick superficial observations:
If the Fed follows through on what its dot-plot for rate hikes signaled today and what Powell said in lavishing markets with hope, then we are going to see the 1970s double-inflation spikes take inflation much higher.
Powell claimed today that inflation has been falling, and I’ve showed since summer that is not really true. Again we see in one article about yesterday’s CPI (below) that health insurance contributed a negative 24% to CPI’s internal metrics. How can that be when the reconciliation the Bureau of Lying Statistics did all of last year took inflation in health insurance down more than 30%, and now it is down YoY 24%? Well, what they did was ratchet it down that much, and now as it continues to inflated they are backing that inflation out as a smaller year-on-year down move. So, that eventually, they will back out most of last year’s negative inflation that never actually happened but just corrected prior years’ errors. It is, as Wolf Richter said, complete “chickenshit.”
You don’t show positive inflation in healthcare insurance as less-negative year-on-year inflation, especially after getting to call your adjustment negative more and more every month last year! It has to be the most bizarre recalibration the Bureau of Lying Statistics has ever done. Month-on-month, however, healthcare insurance is slowly rising now; but it will show negative year-on-year for all of this year, just less and less so, while yesteryear it was more and more so. This is why I’ve said you cannot go by YoY measures if you want to know what is NOW happening in inflation.
So, Powell doesn’t understand the numbers he is working with if he actually believes, as he claims, inflation has been going down each month for several months. Year-on-year inflation has been going down each month because of gimmicks like this in healthcare costs and because of improvements early last year that are still part of the YoY figures; but inflation has gotten worse each month. However, in this past reading even YoY inflation rose.
In that kind of situation, moving back to lowering rates sometime in 2024 is going to cause that nascent inflation that has been insidiously rising in heat to blow up. It will be like breaking a window or opening a door on a house fire where the backdraft of new oxygen feeding into the house causes the house to explode into flames.
This is amazing because it looks like Powell is suddenly determined to repeat the exact mistake of the seventies that sent inflation back on fire when the Fed had half put it out, which Powell said was his greatest fear. It’s either stupidity at a truly stunning level, or Powell wants to see his own stocks shoot to the moon and bond prices, too. It may be capitulating to government pressure to help get Biden re-elected. For now, I’m going to just call the Fed “stupid” because what they are doing will be astronomically dumb in terms of its outcome for the economy, and because they hate to be thought of as stupid, even though they are doing asinine things.
As one reader wrote in a comment today, they are “making sure they don’t have one speck of credibility.”
Again, within in the space of time to think over a daily editorial on a major plan readjustment by the Fed, I can’t spell out how bad this will be, but I will say, after a quick look over all the articles on this subject today that I’ve placed below, I don’t think the Fed will ever get as far as the pivot Powell is now almost promising. My central thesis that inflation would return to rising this year, appears to be on track, and MoM inflation did show through more in YoY inflation, as I said it would start to do, in spite of Powell’s claim that inflation is doing what he and his partners in economic wreckage have been wanting. That inflation will rise more quickly now, in spite of massive gimmicks to keep it down.
One major component taking inflation down was energy. That has likely bottomed out, so will cease to be a major negative factor in inflation. It may even switch to a positive factor. Powell said shortages were a major cause of inflation, and he’s right about that and that he is sure now that pandemic and wartime shortages are basically over. That is a bit rosy-eyed in my opinion, but when you want to feed the market drugs laced with sugar, that’s what you go for. Healthcare will continue to have less year-on-year effect, continue to be less negative, even though it is actually inflating in cost. So, it takes some weight each month off the pan of the scale that is holding down on inflation.
The biggest idiot factor for Powell on this one is that his last big words at the previous meeting about why the Fed might be able to hold on interest hikes (now changed to a posture of why they might be able to actually reduce interest, giving up on “higher for longer”) was that the market was doing the Fed’s job of tightening finances as bond rates were rising and the stock market at that time was diminishing, sucking wealth out of the economy.
Well, if that was the big thing that made the Fed able to stop raising rates, he certainly just blew that up entirely. Bond yields plummeted today on his news (after going down most of the past month because of his words), and stocks soared to record highs, taking us in the course of about a month from “financial markets doing the Fed’s inflation fighting” for it to “financial markets lighting the Fed’s new accelerant on fire as Powell gives them fresh oxygen and sets them loose to dream big with boxes of matches and flame throwers!”
Whatever happens now is pure Powellmania.