Who pissed off Jay Powell?  I think it was the dude from the Wall Street Journal who is usually called first during the question-and-answer period. But yesterday, he was called much further down the depth chart. However, I found it odd the Fed began with the Financial Times (FT), but it’s the kind of media outlet that loves big government, massive welfare programs, and sky-high taxes to pay for it all.

I had a guest on my show yesterday that suggested he was angry with an economist at the Fed for forcing him to bring up the notion of a lag and the cumulative impact of the most aggressive Fed rate hikes in history.

Powell began to get indignant. He stated the obvious (at some point). Next, he reminded those that must have accused him from behind closed doors of not being cognizant enough of lags by reminding us he had mentioned the eventual pivot (the last two press conferences).  Then he reminded everyone of the goal (interest rates that will be sufficiently restrictive).

He began the only pivot that mattered to him during that press conference – ratcheting up that Fed fund rates will be higher than they modeled in September. Again, the justification is ‘uncertainty around that level of interest rates.’

Laying It on Thick

The last sentence was a dagger that turned and erased the highs of the session and sent the market reeling.

As for measuring that lag – it’s a combination of art and science, but the onus is on evidence, not hunches.

For those still fretting, Powell reminded everyone they can print money at the drop of a dime.  Of course, by then, a lot of damage will be permanent:

"If we overtighten, then we have the ability with our tools - which are powerful - as we showed at the beginning of the pandemic episode, to support economic activity strongly - if that happens."

Screaming Fire! 

I’ve been calling the Federal Reserve Federal Open Market Committee (FOMC), the House of Dragon, for a language designed to scorch the earth, and yesterday, King Dragon opened his mouth, and everything went up in flames.

• S& P 500 (SPX) -2.50%
• Nasdaq Composite (IXIC) -3.36%
• Dow Jones Industrial (DJI) -1.55%
• Nasdaq-100 (NDX) -3.36%
• Russell 2000 (RUT) -3.36%

The selloff became the greatest Fed Day meltdown ever.

Powell is Not the Only Person a Little Peeved

Twitter asked for one word to describe the Federal Reserve. 

If the current CME FedWatch Tool guessing is correct, the Street sees the terminal rate at 500-525 for several months. 

Heat Map

All twelve sectors were hammered yesterday, with the largest damage in growth sectors (can we still call them that?), while Utilities (XLU) were the best performing sectors -1.0%.

Green shoots stood out because there were so few of them.

It will be interesting if the market rebounds today – yesterday was major panic and tantrum.

Today’s Session

The market is still wobbly from the Powell haymakers and things didn’t get better when initial jobless claims came I at 217,000 against consensus 220,000.

Non-Farm Productivity

Non-farm productivity slipped to +0.3% coming below consensus and labor cost of +3.5% was less than 4.1% expected, but this didn’t budge the market.  Hourly compensation was +3.8% and hours worked +2.4%.

Still, it is a critical data point that also reveals the conundrum.

Real hourly compensation continues to be negative.

 

 

 

 

Comments

"The level of interest rates will be higher than previously expected." How many times are we going to hear this garbage? Sounds a lot like "inflation will be transitory." For those of you who still think this Fed can engineer a soft landing....This Fed has got nothing right. Continually behind the curve. Inflation is entrenched. It's going to take a huge effort (Think Paul Volker 1970's type) to get us back not to 2%, but near 2%. Am I the only one who sees this??? Charles A Haselberger on 11/3/2022 9:51:59 AM

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