The Fed will likely hike by 25 BPS today (although we hope for 50 BPS). On the subject of a Fed pivot, market commentators seemingly always neglect to mention the QT component. QT is a more powerful monetary policy tool than is the Fed Funds rate in our view. Banks can't lend a Dollar that … Continue reading A Full Fed Pivot
Tag: fed funds rate
The sooner the Fed gets to where it is going, the sooner it may pause and observe. In addition, Treasury yields remain negative across the yield curve which is not long-term healthy for the economy. The Effective Fed Funds rate range stands at 4.25-4.50%. If the Fed believes that the upper bound should sit at … Continue reading Why The Fed Should Hike By 50 BPS
The NASDAQ Composite has had a nice little run, up more than 9% year-to-date. However, I would exercise caution ahead of Tech earnings and the Fed's January 31st / February 1st FOMC meeting. We have written on numerous occasions that we expect management teams to take a conservative approach to 2023 Revenue and EPS guidance. … Continue reading Technology Stocks Are Not Yet In The Clear
Headline CPI came in at 6.5% year-over-year and down -0.1% for the month of December. Core CPI was up 5.7% year-over-year and up 0.3% for December, up from 0.2% in November. Readers know how we feel about price inflation - it is higher than what the government reports. Take "eggs" for example which we recently … Continue reading CPI: A Long Way To Go To 2%
We've touted NASDAQ 9,000 as a bottom for over a year. That's only 14% off of current levels. Many believe that Technology stocks are cheap, but not in my book. Not in a world where the long-term Fed Funds rate settles around 300 BPS and absent QE. No more Fed put? I can easily imagine … Continue reading No Fed Put – NASDAQ 7,000?
The Fed's FOMC statement reads that the Central Bank anticipates that its Fed Funds Rate will need to go higher in order to return CPI to 2%. The Fed plans to continue with QT in-line with its previously communicated path ($60 billion per month cap on Treasuries, $35 billion per month cap on Agency securities). … Continue reading Fed Funds Will Go Higher. QT Will Continue.
The Cleveland Fed estimates 6.3% Core CPI for November. CPI data will be published on Tuesday. The 6.3% Core CPI estimate sounds about right. One would expect Core CPI to be flat to slightly down in November. I would expect the Fed to push its Fed Funds Rate north of 5% in 1H 2023 and … Continue reading CPI Week: Price Inflation Remains Too High
Persistently higher interest rates combined with weaker earnings is a recipe for lower equity valuations in 2023. Rates are going higher for longer. It is difficult to imagine the equity markets bottoming before the Fed is done tightening, especially as QT runs in the background shrinking bank reserves and the monetary base. It is not … Continue reading More Pain To Come For Equity Markets
"Did Powell just say that the pace of Fed Funds Rate increases may slow? Let's run stocks higher through year-end, fundamentals be damned!" I've never seen a more lazy equity market in my life. Fundamentals have not mattered since the COVID lockdowns and Fed policy matters far too much. The market is to blame as … Continue reading Stocks To The Moon, Fundamentals Be Damned
The simple formula for crashing the economy is to shrink the monetary base (cash in circulation plus reserves) while raising interest rates. The chart below plots the monetary base (down 15% year-over-year) against the 10-year Treasury yield (up from 1.56% to 3.98% over the past year). Source: https://fred.stlouisfed.org/graph/?g=Vpb0 We are all but guaranteed a deep … Continue reading How To Crash The Economy