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Afternoon Note

Waiting for the Fed

By Charles Payne, CEO & Principal Analyst
12/14/2022 1:29 PM

We are moments away from Federal Reserve chairman Jay Powell’s press conference, which could be explosive and will have ramifications for the economy and markets deep into 2023. 

The fed has a few dilemmas.

M2 growth has evaporated, and history says CPI will follow.  If inflation is a monetary phenomenon, the Fed should be on guard for overshooting.  Powell mentioned the ‘lag effect” of policy last time; maybe, he’ll expound on the topic more today.

Also, the Fed wants to see unemployment climb, but history shows they have a terrible record of overshooting and creating so much unemployment carnage they have to start cutting rates.

Another issue is Fed funds are approaching core PCE – I’m not convinced the Fed will ever take fed funds above core PCE?

Hold on boys and girls. There will be fireworks, and if the Powell is practical, lift off.

The CPI & M2 Money Supply chart from my view, does not show a good correlation. I see CPI decreasing from here but things like food, energy and wages will stay elevated for much longer. If those items drop we’ll all be feeling regret for following the narrative “stay invested cause the market goes high over time.”

Paul Rotondi on 12/16/2022 8:05:24 AM

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