Is Mr. Market daring Jerome Powell to raise rates?
That’s one way to read today’s bull market — the Nasdaq rose 2.9%, the Dow gained more than 800 points (2.6%), and the S&P 500 added 2.5%. Despite the carnage in big-cap tech stocks like Facebook, Amazon and Google, the Nasdaq rose 2% last week. The S&P500 gained about 4% for the week and is up about 7% over the past 30 days.
As evidence accumulates that inflation has peaked, the FOMC may have little choice but to slow, then stop rate hikes. Sure, November looks like a lock at 75 bps, but now December is underway, and expect it to be another 50bps — and then be done. If that happens, a temporary “soft landing” will again be possible.
So far, Jerome Powell has been talking tough—he likes headlines like “The Fed aggressively hiked rates to 5%, triggering a global recessionBut other voting members have already softened their views, notably Fed Vice Chair Lyell Brainard and San Francisco Fed President Mary Daly.
Official Fed Whisperer Nick Timiraos at the WSJ — he’s the market’s direct bearer from Powell — revealed the most recent insider dope last week, noting “Federal Reserve officials are holding off on another interest rate hike of 0.75 percentage points at their meeting on Nov. 1-2 and may be debating whether and how to signal plans to approve a smaller hike in December.“
Generally, the employment consumption index doesn’t tend to produce fireworks – it’s released quarterly, and if we want to get granular on a monthly basis, we have CPI and NFP. But better-than-expected (read lower) hiring costs seem to have awakened the bullish spirit in the market.
ECI was a relief. Wage growth has slowed, now about 2 percentage points above pre-Covid, suggesting underlying inflation at ~4 percent. That’s consistent with what you’d get if you replaced BLS shelters with new rent increases at core inflation. We are not that deep into the inflation hole
— Paul Krugman (@paulkrugman) October 28, 2022
While commodity prices are falling, services remain sticky. Apartment rents and wages have been a key focus. Declining wage gains aren’t great for workers, but in a high-inflation environment, investors want to see it.
in the past:
Why is the Fed always late to the party? (October 7, 2022)
Goodbye, TINA (September 28, 2022)
Revised Peak Inflation (June 29, 2022)
Who’s to Blame for Inflation, 1-15 (June 28, 2022)
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