Fed Hikes 75 Bpts to 3.75-4.0%, Pivots Even More Hawkish: “Very Premature to Be Thinking about or Talking about Pausing.” Markets Tank

“What I’m trying to do is make sure our message is clear: we think we have a ways to go,” Powell said. “Rates have to go higher and stay higher for longer.”

By Wolf Richter for WOLF STREET.

At every single meeting since the initial baby-step in September 2021, the Fed has pivoted further into the hawkish direction. And it happened again today.

The FOMC voted unanimously to raise its target for the federal funds rate by another 75 basis points – the fourth rate hike of this magnitude in a row – to a range between 3.75% and 4.0% – unimaginable a year ago. The rate hike was expected, and had been projected by the Fed at its September meeting.

But then during the press conference, Powell pivoted further into the hawkish direction, and repeatedly, and purposefully, and all heck broke loose in the markets, and he kept hammering on it, and concluded with it, to where there would be no misunderstanding and no misinterpretation.

Today’s rate hike was projected at the FOMC’s September meeting in the projection materials at the time. The “dot plot” indicated at the time that the Fed would raise by another 125 basis points by year end: so by 75 points today (done) and by 50 basis points at its December meeting, which would take the upper end of the range to 4.5%.

But today, Powell put the 50-basis-point rate hike in December in question, and said that the Fed may not slow the pace of the hikes in December, which would mean another 75-basis-point hike in December, which would bring the top end of the target range to 4.75% by yearend.

Instead of slowing the pace of rate hikes in December, the Fed may slow it in January, he said. So what would that be, a 50-basis-point hike in January, on top of a 75-basis-point hike in December? That would push the top end of the range to 5.25%. “It’s likely we’ll have a discussion about that,” he said.

“The Committee is highly attentive to inflation risks,” the statement said. “The Committee is strongly committed to returning inflation to its 2 percent objective,” it said. Powell was just a lot more colorful.

The Fed raised all its five policy rates by 75 basis points:

  • Federal funds rate target to a range between 3.75% and 4.0%.
  • Interest it pays the banks on reserves, to 3.9%.
  • Interest it charges on overnight Repos, to 4.0%.
  • Interest it pays on overnight Reverse Repos (RRPs), to 3.8%.
  • Primary credit rate it charges banks, to 4.0%.

Quantitative Tightening continues at full speed.

QT will continue at full speed as previously outlined. The Fed considers it an important tool in cracking down on inflation, Powell said at the press conference. This is a tacit admission – which must never be spoken out loud during the press conference, neither by the press nor by Powell – that the huge bout of QE had something to do with this raging inflation, and that this huge bout of QE will now have to be undone.

It’s “very premature” to be even thinking about thinking about pausing the rate hikes?

Powell used the word “premature” three times during the press conference in relationship to “thinking about pausing” and “talking about pausing.

“Let me say this, it is very premature to be thinking about pausing. When they hear ‘lags,’ they think about a pause. It’s very premature in my view to be thinking about or talking about pausing our rate hikes. We have a ways to go. We need ongoing rate hikes to get to that level of restrictive,” he said.

Later he said, “Okay, so I would also say it’s premature to discuss pausing. It’s not something that we’re thinking about. That’s really not a conversation to be had now. We have a ways to go.”

Markets began to tank when…

I had the S&P 500 chart running on the same monitor as the live press conference. Everything was going fine, markets were in the green as Powell was reading his prepared statement at the beginning of the press conference. And then, towards the end of his prepared statement, he read:

“At some point, as I’ve said in the last two press conferences, it will become appropriate to slow the pace of increases, as we approach the level of interest rates that will be sufficiently restrictive to bring inflation down to our 2% goal. There is significant uncertainty around that level of interest rates. Even so, we still have some ways to go, and incoming data since our last meeting suggest that the ultimate level of interest rates will be higher than previously expected.”

This phrase was the moment when markets began to tank, it happened instantly. At 2:35 p.m., after he finished reading that line, the bottom fell out, and the S&P 500 dropped 53 points, in just moments, from 3,894 (green) to 3,839 (deep red).

Then he added: “The historical record cautions strongly against prematurely loosening policy. We will stay the course, until the job is done.” And markets tanked some more.

And then he added and repeated all the other stuff, particularly the thingy about it being “very premature to be thinking about or talking about pausing our rate hikes.” And each time, markets tanked some more.

Ultimately, the S&P 500 ended the day down by 2.5%. And the Nasdaq Composite ended the day down by 3.4%.

Some of Powell’s delectable morsels at the press conference.

How fast, how far (“to higher levels than we thought at the September meeting”), for how long. “The tightening program is addressing three questions,” he said: “The first is, how fast to go. The second is, how high to raise our policy rate. And the third, how long to remain at a restrictive level.”

“So on the first question, how fast to tighten policy. It has been very important that we move expeditiously, and we’ve clearly done so. We’ve moved 3 3/4 percentage points since March, from zero. That’s a fast pace and certainly appropriate given the low level from which we started.”

“To the second question, how high to raise the policy rate. We have to raise to the level that is sufficiently restrictive to bring inflation to 2% target over time. We put that into our post-meeting statement. Because that really does become the important question now, how far to go.

“We think there is some ground to cover before we meet that test. That’s why we say that ongoing rate increases will be appropriate. As I mentioned, incoming data between the meetings, both the strong labor market report but particularly the CPI report, suggest to me that we may move to higher levels than we thought at the September meeting. That level is very uncertain, though. I would say we’re going to find it over time.

“As we move more into restrictive territory, the question of speed becomes less important than the second and third questions. That’s why I’ve said it’s appropriate to slow the pace of increases. So that time is coming. And it may come as soon as the next meeting or the one after that. No decision has been made. It is likely we’ll have a discussion about this at the next meeting.”

“To be clear, let me say again, the question of when to moderate the pace of increases is now much less important than the question of how high to raise rates and how long to keep monetary policy restrictive, which will be our principal focus.”

Staying the course: “The historical record cautions strongly against prematurely loosening policy. We will stay the course, until the job is done.”

“Rates have to go higher and stay higher for longer.” In terms of a soft landing, “we’ve always said it was going to be difficult. I think to the extent rates have to go higher and stay higher for longer, it becomes harder to see the path. It has narrowed. I would say the path has narrowed over the course of the last year. It’s hard to say.

Federal funds rate above core PCE, the Fed’s yardstick, now at 5.1%: “I think the answer is we’ll want to get the policy rate to a level where the real interest rate [federal funds rate minus core PCE] is positive. We will want to do that. I do not think of it as a single and only touch stone, though…. I wouldn’t say it’s something that is the single dominant thing to look at.”

Will take time to get inflation down due to hot labor market and flush consumers. “I would say a big challenge is the labor market. The labor market is very, very strong. Households, of course, have strong balance sheets. We go into this with a strong labor market, and excess demand in the labor market…. Also, households have strong spending-power built up. So it may take time. It may take resolve and patience. It’s likely to get inflation down. I think you see from our forecasts and others, that it will take some time for inflation to come down. It will take time, we think.”

Overheated housing market: “The housing market was very overheated for a couple of years after the pandemic as demand increased and rates were low. We all know the stories of how overheated the housing market was. Pricing going up, many many bidders, no conditions. The housing market needs to get back into a balance between supply and demand. We’re well aware of what’s going on there.”

Labor market can soften through a decline in job openings: “The broader picture is an overheated labor market where demand exceeds supply. Job creation still exceeds the level that would hold the market where it is. That’s the picture.”

“We do think that given the data that we have, this labor market can soften without having to soften as much as history would indicate through the unemployment channel. It can soften through job openings declining [I discussed the situation of the job openings yesterday]. We think there’s room for that. We won’t know that. That will be discovered empirically.”

To make sure the message is clear: “Our message should be – what I’m trying to do is make sure our message is clear: we think we have a ways to go. We have some ground to cover with interest rates before we get to that level of interest rates we think are sufficiently restrictive. Putting that in a statement and identifying that as a goal is an important step.”

Rates are going to be higher than estimated in September. “We think that the level of rates that we estimated in September … is going to be higher. That has been the pattern [that each meeting gets more hawkish]. That will end when it ends.

Because inflation isn’t coming down. “There’s no sense that inflation is coming down. I have a table of the last 12 months of 12-month readings; there’s really no pattern there, we’re exactly where we were a year ago.”

Commitment to getting this done. “The last thing I’ll say is that I would want people to understand our commitment to getting this done, and to not making the mistake of not doing enough, or the mistake of withdrawing our strong policy and doing that too soon.”

 

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  231 comments for “Fed Hikes 75 Bpts to 3.75-4.0%, Pivots Even More Hawkish: “Very Premature to Be Thinking about or Talking about Pausing.” Markets Tank

  1. BreadnH2O says:

    I love this sentence. Run-on? Yes. Blunt force English to make your point to those who keep suggesting ‘pivot’? Yes. Well done.
    But then during the press conference, Powell pivoted further into the hawkish direction, and repeatedly, and purposefully, and all heck broke loose in the markets, and he kept hammering on it, and concluded with it, to where there would be no misunderstanding and no misinterpretation.

    • Chicken says:

      I read these types of sentences in his podcast voice. It’s actually a nice stylistic touch.

      • Leo says:

        If this guy would have made same statements 6 months back, the midterms would not be so grim.

        Also disappointing the markets a week before elections can result in serious tantrums.

    • Old school says:

      I might be incorrect, but in the midst of QE didn’t Bernanke say if inflation reared its head he could kill it in no time.

      I thought heard Powell say today that inflation is hard to kill and that he had rather risk putting the economy in recession because killing inflation is hard, but juicing the economy is easy if he happens to tighten too much.

      It sounds like the Fed is good at fighting the battle they are not end.

      Let’s see if Gunlach is correct. I thought I heard him say about 4.25% is where 10 year will top. Also that Fed will not make it to 5.0%. We should know within 3 months.

      • CCCB says:

        Markets have become so dysfunctional (lazy), they now FOLLOW the fed and forgot fed rule #1

        The fed follows the markets!!!!

        Just pay attention to what the fed says, believe they’ll do what they say and make a SH*T TON of money.

        They basically told us last year, SELL your stocks, SELL your real estate, SELL your bonds. What did everyone do? Come up with assenine theories on why it was all a lie and the party would never end

        No pivot. The spigot’s closed

        • Mark says:

          “No pivot. The spigot’s closed”

          So it’s time for you (and Wolf) to be taking your “victory laps?”

          After several months of “tightening” ( still -6% – 10%, take your pick, below the true rate of inflation?)

          Ha As Mike Tyson said , “Everyone has a plan, until they get punched in the face….” .

          And that’s coming.

        • Mr. House says:

          “Markets have become so dysfunctional (lazy), they now FOLLOW the fed and forgot fed rule #1”

          They’ve been dysfunctional once price discovery was removed from the equation because ya know, can’t let the world know we’re bankrupt. They’ve been following the FED for 14 years. Every gain you’ve had since 2008 is because of the FED

        • Wisdom Seeker says:

          Remember that “the market” always contains tens of trillions of dollars in assets that someone has to own at all times.

          Those owners want higher prices.

          Rule #1 is Don’t Fight the Fed, but that only works at the individual level. At the market level, when the Fed’s tightening, whoever owns those assets is Fighting the Fed. And yet someone has to own them.

          So when the Fed has to tighten, those owners face distress and will generate obtuse theories to try to get prices to go up.

        • polecat says:

          Seems like its all one big mobius circle jersey strip, if you ask me .. with heaping piles of lit gas blown in for good measure.

          Heads, or Tails .. who cares?? I get no satisfaction either way, just more grief!

          Oh, and Mr. House .. regarding Republicans, if you’re talking gelded rhinos, then yes, I most certainly agree.

        • polecat says:

          That was supposed to read circle ‘jerk’, not jersey..

      • JeffD says:

        December 2010, Mr. BERNANKE: We could raise interest rates in 15 minutes, if we have to. So there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation at the appropriate time.

        See? Inflation is a simple, quick 15 minute fix. Definitely worth a Nobel prize.

    • Brad says:

      He’s gotten more and more hawkish but yet the market and talking heads on CNBC keep pushing the pivot narrative. They are so desperate for it. I actually believe Powell now when he says they’re taking inflation seriously. If unprecedented rate hikes aren’t being taken seriously then the pivot-longers deserve the pain that’s coming.

    • Bobber says:

      After 30 years of gibberish, flip flops, and forecasting errors, it’s nice to the Fed deliver some clear consistent messaging. If they stick with it, the Fed might be able to preserve its very existence, which is hanging by a thread.

  2. LKinAZ says:

    You called it!

  3. Kevin says:

    Was waiting for this piece from Wolf. Still baffled by the lack of volatility in the market (the Vix is barely up today). Hope there is more fear to come.

    • Goomee says:

      Dow went up 300+ during his speech and close to 600- after.

      • The Real Tony says:

        Not the DOW the fraud ponzi. Not Wall Street, “Fraud Street” and the not the plunge protection team but “The Fraud Squad”. This market makes the summer of 1929 look like the buying opportunity of a lifetime.

    • gametv says:

      The market has simply reversed some of the gains from previous week(s). The volatility will increase once the market breaks below the previous support levels. There are plenty of market participants that think this was a one day drop and the market will continue to advance into the end of the year. I highly doubt that now.

      I wish they had decided to double the pace of QT, selling off alot of Treasuries and MBS. Just dump that junk back into the market and let the markets properly set interest rates. The pace of QT is still far too slow, compared to the pace they ran it up.

    • JoeS says:

      I’ve been noticing a lack of movement by the VIX since June. Your post made me see if there might be others .

      Here is what I found:

      May 12, 2022 at 9:37 am ET
      WSJ
      Why Did the VIX Fall When the S&P 500 Dropped 1.6%?

      “One theory? Bursts of selling by professional traders reduced demand for insurance through the options market, upending the typically inverse relationship.

      “There may be more institutional liquidation going on right now than many people realize and someone selling equity holdings doesn’t have a need for downside protection anymore,” wrote Tom Essaye, president of Sevens Report Research.

      That would reduce demand for hedges through the options market. The cost of these hedges, akin to insurance contracts on the S&P 500, feeds into a calculation for the VIX.”

      https://www.wsj.com/livecoverage/stock-market-today-inflation-05-11-2022/card/why-did-the-vix-fall-when-the-s-p-500-dropped-1-6–DHGowgXqPOKfU96znV2S

    • Lynn says:

      I think it might take a couple/few days for anything the fed says to sink in sometimes.

      I did notice that the rate of homes put onto the market in my area more than doubled in the past 24 hours. Those are the smarter ones..

      Granted, it’s a very small area, and not a large volume, but it more than doubled pr day.

  4. Michael Engel says:

    Foxconn, JP, 270 planes US + S. Korea drill started today, but DX futures
    didn’t care !

    • Cobalt Programmer says:

      Why should they be….

      1. Govt or the TPTB never cared last time (2008 or 2009 depending on how you look at it)
      2. The major difference between a drill and “incident” is the media you read
      3. Hindsight is 2020. Lot of commenters here will say, how nobody noticed the dotcom bubble or housing bubble. Well, going forward nobody can say!
      4. The *ar will go on until the last man of krine, orea, appan and rbia. When it comes to mainland, there will a peaceful treaty.
      5. If you think the current events are rigged and moderated by the *ensors and govmint, think again about the history.
      6. witter is a syop to unmask the dissidents.
      7. We are friends. Nothing hard in-between us.

  5. Auld Kodjer says:

    “Rate futures markets now imply about even odds of it climbing to 5 per cent or higher next year”, according to abc.net

    • Wisdom Seeker says:

      Rate future markets have been wrong all year long. The Fed has been kicking the rate futures upward every chance they can get.

  6. jjj says:

    Finally!

    As a long time Chicago Bears and Paul Volcker fan half my dreams just came true!

    Now, if only the Bears can sign Brissett and Chubb!

    • WolfGoat says:

      Remember what happened the last time the Phillies won the World Series! History has a way of repeating itself!

      • VintageVNvet says:

        they better win tonight WG, or they will almost certainly lose the series and we won’t have to worry about a repeat of the last crash,,, at least from that cause/coincidence
        last night’s no no made me think the astros are just toying with them to make sure they finish it in Houston…
        of course the astros would never cheat though, eh

  7. Einhal says:

    I said it before and I’ll say it again. I’m convinced the entire “pivot” narrative was a massive pump and dump scheme by the big boys to leave retail investors as the bagholders.

    • Cytotoxic says:

      No it was just delusion that results from a culture born of literally decades of ever-looser monetary paradigms. The fed was always there to coo markets and give them what they wanted with only gentle retraction in 2014. That engrained itself into peoples’ psyche. Culture shock of a different kind.

      • JeffD says:

        What amazes me was the technical bounce at SPX 3500, as though we were operating in the same monetary regime as the past 30 years. Wallstreet is pretending away the 8-10% worldwide (official) inflation rates and the associated rate hikes and QT as though they don’t exist. There is no correction at all in Wallstreet’s methodology/process for “business as usual”.

    • Miller says:

      This! Been thinking and saying this too. It’s odd esp how the WSJ and other Murdoch media have (at least they were for a while) going all out on the “pivot” happy talk with like every other headline. Even though there’s never been even the tiniest hint of such intentions by the Fed or by other central banks, not to mention that the fundamentals push them in hawkish direction for good reasons. The most likely explanation is truly, the big boys were hoping to sucker in retail investors as bagholders, who keep stupidly getting lured in by the pretty headlines with each little rally only to get burned when the major players dump their assets on them.

      Like Wolf has been saying, this rampant inflation all across the US (even in the nearly abandoned small towns and rural areas) is totally wreaking havoc on price stability throughout the USA, and whatever other worries the Fed and other central banks have, they pale compared to the mortal threat to the national economy and viability from inflation out of control. This would be bad enough for any country, but the United States is also dealing with an opiate epidemic and still a lot of people getting sick from Covid, losing their health insurance and in general facing more and more misery, all while the US dollar is steadily losing purchase power for key goods and America is facing the worst partisan divisions and polarizations since the mid 1800’s. And with 400 million firearms and a powder keg if economic conditions get too stressful and Americans in general can’t afford even the basics (even shelter, thanks to this outrageous housing bubble we’ve been in)–things get really ugly when the masses feel cheated of their earnings and savings and feel they have nothing to lose. The pivot squawkers and speculators fail to realize that for whatever his flaws, JPow is a student of history and he knows that far more great empires and major powers have been toppled by raging inflation than by war, and social unrest in the US from spiraling costs would get real nasty real fast. It’s the same realization that Paul Volcker came to by 1981 and 1982, and the same solution for it, with QT added in.

      • WolfGoat says:

        You lost me at “all while the US dollar is steadily losing purchase power for key goods”. The dollar is at the highest level it’s been in over 16 years. That’s called exporting inflation.

        Now a play in about 3-6 months might be to short the dollar! When the Fed ‘pauses’, the dollar will back off.

        • Escierto says:

          Exactly right. The USD made a huge move upwards today gaining 1.5%. King Kong is on the move again!

        • electroneuter says:

          Really? “The dollar is at it’s highest level” in regards to “purchase power for key goods”? So key goods/services like food, gasoline, health care, and housing are cheapest in the last 16 years when paid in US$, right?

          If you count the Meta stocks and monkey ETF as the “key goods” then you are right 100%. I cannot bring myself to believe you’ve meant the “highest level” in the FX sense. Maybe yen and pound are the “key goods”?

          IMO, USD is the prettiest horse in the Western glue factory. For now. Just me.

        • Einhal says:

          I’m really getting tired of hearing about how “strong” the dollar is. Sure, it’s gotten “strong” relative to other fiat currencies which have been debased by reckless central banks, but it’s not strong in terms of what goods and services it can actually buy.

          I need my dollars to buy food, housing, and medical care. The fact that I can buy more pounds, euros, or yen with it doesn’t do me a hell of a lot of good.

        • Miller says:

          The US dollar is having a lot more inflation than many other currencies such as Swiss franc, won, yuan, baht and yes, even the Canadian dollar, another way of just saying that the dollar is losing it’s value and buying power much faster and more broadly than a lot of other currencies. The forex markets (and esp DXY) are a mess and subject to many of the same speculative swings as even crypto markets, so the best objective measure of a currency’s actual value is inflation, which is after all, a measure of how well a currency holds its value to buy real goods and services. The higher the inflation, the less stable and valuable the currency is in holding its value to actually buy things, which after all is the only thing that money (which is just a token for buying goods and services of actual value) is actually good for.

          In other words, someone with francs, renminbi or Canadian loonies in their pocket is objectively better preserving the value of their savings and earnings than someone holding dollars the way inflation has been trending so far. If a Canadian saved up 1,000 loonies they earned from last year at this time, those loonies will have held more of their value (lost less of their purchase power) than an American holding $1,000 they made at the same time last year. That’s also why it’s dangerous to disregard the threats and destabilizing forces for society when inflation runs uncontrolled even if it seems like one’s own currency is the cleanest dirty shirt (which again the USD is not, with its much higher inflation over the past year and now compared to many other currencies).

          Again our econ prof years ago went on a tirade against the very idea of a single reserve currency since that’s not really how it works, and imagining a country has “the” reserve currency gives a false sense of security that can hide a dangerous level of erosion and economic downward spiral. In reality, both individual investors and institutions hold many different reserve currencies and other asset classes (such as commodities) that will fluctuate in value, and an inflating currency by definition is an unstable asset that’s rapidly losing its value. When the US dollar inflates like it is now, it’s losing its ability to exchange fofr real goods and services and cheapening the earnings and hard work of people who worked hard to save in that dollar currency. And it’s losing that value much faster than holders of many other currencies, including for very basic items like shelter, healthcare and food. All of these things have historically led to social unrest and existential threats to a country’s viability in the past, which is why they can’t be ignored. And it’s why JPow and the Fed isn’t ignoring and can’t ignore them, just like Volcker 40 years ago.

      • Somewhere in New York City says:

        Absolutely spot on. I was following the live WSJ coverage yesterday, and they posted this on the home page as a “key sentence” that they said Powell just spoketh:

        START
        “In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”

        Traders seem to be interpreting that as a sign that the Fed will consider the sum of its rate increases, as well as the fact that its interest-rate increases will take some time to have an effect on the economy, when making its next moves. That’s reassuring news for traders who’ve been worried that the Fed will overtighten monetary policy in its quest to quash inflation.
        END

        When I read that I said, Oh, this is bad, the Fed is not sticking to their plan. Cause the WSJ reports the news, right?

        I am glad Wolf posted this so I understand what’s really going on.

        • Otto Krump says:

          Headline posted on Canadian public broadcaster CBC News on Nov. 2nd,

          U.S. raises interest rate again but hints that hiking policy may soon pivot

          A depressing amount of content from what used to be called “trusted news sources” is now garbage from the same dumpster.

      • Lynn says:

        “the worst partisan divisions and polarizations since the mid 1800’s. And with 400 million firearms and a powder keg if economic conditions get too stressful ”

        I think tensions are much more likely to manifest as spree killings, random crazy assassinations, beating up more politicians and authority figures, smash and grabs, arson, pitchforks and riots than a civil war. I really don’t see much in the way of coherent or even noncoherent organized public ideology out there..

    • Iona says:

      Yep, and all the degenerate gamblers bought calls to counter the puts they had which is why we saw massive options related volatility. The spike in the Dow and the banks in just 2 weeks will go down in history.

    • hugo says:

      Yes time to time they have tp push up the market a bit for creating new selling levels for themselfs.

    • VintageVNvet says:

      Agree with you E on this one,,,
      Was NOT the first time, and definitely won’t be the last time, certainly exacerbated these days by the current fad of social media mongering amongst the cognoscenti as well as the peedons!

    • The Real Tony says:

      The ruse worked they sucked in a lot of bag holders before the indexes collapsed.

  8. Depth Charge says:

    Powell, to remove any uncertainty among the speculators about what he and the FED are doing and intend to do, just cut them off at the knees with a dull bone saw while staring right into the whites of their eyes.

    • Rosarito Dave says:

      As a previous comment said, this sell-off (and earlier this week) was just a small portion of the rally from Oct 13-28 after the CPI came out HOT…. the markets bounced hard at the 3500 level and went all the way to 3900 in a couple of weeks…

      JP COULDN’T have been more hawkish today (Thanks Wolf for the highlights)…yet we have seen this fantasy of a FED (first it was a Pivot) pause happen over and over again each month.

      It will be REAL interesting to see how the markets play into first the Oct Jobs report on Friday, then (and right after) the midterms, then the CPI a few days later…

      D.C. … you said “…Powell, to remove any uncertainty among the speculators about what he and the FED are doing and intend to do, just cut them off at the knees with a dull bone saw while staring right into the whites of their eyes…”

      He did that same thing at Jackson Hole in late Aug causing a sell-off, yet the speculators must have donned artificial limbs, because they were back in full force these last 20 days…

      Based on the monthly cheer leading chorus, I would expect another round of irrational MSM analysts and banks to start pushing the narrative “The Fed will pause soon” before the Dec Fed meetings. It would be good if I was wrong and reality was restored…

    • James Pelton says:

      Well said. But remember that Powell and his predecessors have been strapping us onto the table for a sawing for some time now. “It’s transitory, tighten the straps”.

  9. Confused says:

    I liked the part about having the real federal funds rate positive, but would have preferred CPI to core PCE.

  10. WolfGoat says:

    If the NFCI/ANFCI are to be believed, they STILL have a ways to go… they have to get the leverage out of the system (+positive) IMHO.

    Latest NFCI Release

    Index Suggests Financial Conditions Loosened Slightly Again in Week Ending October 28

    The NFCI ticked down to –0.10 in the week ending October 28. Risk indicators contributed 0.02, credit indicators contributed –0.02, and leverage indicators contributed –0.10 to the index in the latest week.

    The ANFCI also ticked down in the latest week, to –0.04. Risk indicators contributed 0.06, credit indicators contributed 0.02, leverage indicators contributed –0.08, and the adjustments for prevailing macroeconomic conditions contributed –0.04 to the index in the latest week.

    • Depth Charge says:

      I don’t know what the NFCI is, but credit is still way too loose. I remember several years ago talking to a new car salesman who had been in the business 6 or 7 years, and he told me he had never had so much as a single person refused for a loan. That’s the reality of today’s markets, whether it’s autos, houses, RVs or otherwise. Everybody’s approved.

      When I think back to the early 90s when I got my first car loan, I had been employed at the same job for over 3 years, had 35% down, and it was STILL difficult to get a loan without a co-signer. But I wanted to do it myself without any help from family. I had never purchased anything on credit before, and had never had a credit card.

      We need to get back to the days where it is exceedingly difficult to borrow, and that people are required to have large down payments – “skin in the game,” so to speak. This “borrow the 3% down payment” mortgages model is rotten to the core. You need more cash to rent a house than you do buy one. That is bass ackwards.

      • phleep says:

        I agree with DC, low down payments feed a feedback loop to too-casual defaults and then to bailouts. Irresponsibility gets wired into the participants’ minds and actions.

        I bought my house at age 37 with 20% down.

      • Halibut says:

        Loans on RVs…

        If you can’t pay cash for a depreciating toy… Good grief.

        • doug says:

          Oh, but many folks do that. I recall my shock at finding out others were willing to borrow large sums to buy boats/RV’s. I was truly surprised when someone had a boat destroyed in a hurricane, and he told me the insurance was more than the loan, so he was good. Until then, naïve me thought everyone saved for such.

        • Lauren says:

          There is a vast low wage work force in this country. If they wait to pay cash for everything, they’ll do nothing with their lives.

        • Mr. House says:

          “There is a vast low wage work force in this country. If they wait to pay cash for everything, they’ll do nothing with their lives.”

          You’re not wrong, but your look the other way attitude will probably be shalacked in the history books of the future. People need to learn self control and find other things they enjoy in life other then spending money. By acting irresponsible they give license to the corporations and politicians who say “see we have to become more oppressive!”

        • random guy 62 says:

          Bought a new camper a few years ago from a large local dealer. They didn’t really care if I paid cash or not. They just assume most people are financing, and their default term for any new travel trailer loans is 10 years. This was an $11,000 camper. The payment they offered was around $120/month.

          A payment plan like that lets every Tom, Dick, and Harry live the “good life”.

        • Cookdoggie says:

          Companies like Affirm (buy now, pay later) now pop up at checkout on numerous websites. You don’t have to pay cash for anything anymore, just more debt to ignore.

      • Cas127 says:

        “Everybody’s approved.”

        By the late 90’s, dealer underwritten loan paper sold into the public mkts (otherwise known as adverse selection crapola) had started to seriously, seriously displace traditional loan-to-hold lending (ie, “Don’t eff up the underwriting, it’s our own sweet ass”).

        The other part of the equation that birthed this easily foreseeable, but addictive, nightmare was ZIRP.

        Yield starved investors may have worried they were going to get screwed (good instinct, horrible follow-through) but DC Fed policy left them no alternatives if they stayed in USD and wanted to/had to get historically normal returns.

        So all the financial intermediaries who packaged up the crappy loan paper turned themselves into crappy car salesmen as well. And clearly doomed bundled loans (CMBS, CLO, everything) got pumped out into the US saving mkt by the Chinese cargo shipload.

        DC loved it because it created the patina of consumer normalcy over the syphilitic rot underneath (the final vanishing of American competitive productive efficiency).

        Housing bust 1.0 exposed it all beyond argument.

        DC’s only “fix”?

        Let’s do it *again* with *lower* dollar returns, worse mkt distortions, and the cultivation of *more* financial cancer.

      • cd says:

        Their tightening, its happening, their changing decision engine models, AI and machine learning workflows. People will still buy and finance things. The thing about today is AI and Algo created credit buckets can be changed instantly, then run the previous customer data set against those changes and see what your risk and penetration will do for said pre-qualification..

        Risk modeling and risk decisioning has changed, not saying everyone is good at defining risk, but tiered programs have been changing rapidly this year

      • WolfGoat says:

        NFCI… I keep an eye on it… but is a trailing indicator.
        https://www.chicagofed.org/publications/nfci/index

      • Lynn says:

        It is far far easier to borrow $200K with 3% down than $25K or even $50K with 85% down. They make their money off fees. Banks need to have some skin in the game as well.

  11. The New Normal says:

    Went out this morning to Home Depot in Denver to grab a bag of lawn winterizer to put down on the lawn. Amazing stepping into the store and seeing all the Christmas trees, lights, etc. already put out. Lots enthusiastic shoppers gawking and filling up baskets. I don’t think $5.00 gas, or $7.00 eggs will a stop Americans thirst for spending. We only put out so much hay for the cows during winter, as they don’t seem to know when they get full.

    • Arya Stark says:

      Won’t stop until they lose their jobs. Until then, party on Wayne!

      • Seba says:

        Seems like it, previous wolf article was talking about the tight labour market and wage increases, so the blow from inflation is actually kind of soft for some people.

        For myself I’m kind of wondering how this plays out, someone previously mentioned similar labour conditions for them in 2007 where they were able to secure a good increase. We all know what came in 2008 for a lot of people though. In this inflationary period I picked up 16% but also a few more responsibilities due to lack of workers. Now I’d love to change jobs/careers, been thinking about it for over a year, but if ’08 or dotcom repeats I could be out on the street as a new hire. Meanwhile, my crappy industry thrives in recession time when infrastructure spending goes up to “stimulate” the economy.

        Now all I got is a headache trying to figure out what the hell is coming next so I don’t make a dumb move again.

        • Finn says:

          The answer to inflation? The endless infinite wealth creation? The asset bubbles?

          One answer – Bitcoin

      • CC says:

        Party on Garth.

      • Phil says:

        I was in Lowes this morning and the disembodied announcer voice informed me that Lowes was hiring… looks like the party continues.

    • eric says:

      “We only put out so much hay for the cows during winter, as they don’t seem to know when they get full.”

      Ha! Just call him Farmer Jer.

  12. Arya Stark says:

    How long until we start the melt up based on pivot rumors at the next meeting? Wash, rinse, repeat. This is exhausting. And how the F does crypto not crash on a day like today?

    • Cytotoxic says:

      Crypto got whacked pretty hard. Most of its froth was boiled off months ago.

    • Z33 says:

      Crypto isn’t regulated and is very much manipulated. Even the daily swings in the stock market are very much algo-based.

      • phleep says:

        Watching BTC rigidly hug the 10,000 price increments for super-long periods tells you, sentiment or whales are a huge influence. It stands to reason, as “fundamentals” is not really a term that applies, at least not yet.

      • Spencer says:

        Crypto topped last Nov. – like I said.

    • Halibut says:

      Effing tulips.

      • Cytotoxic says:

        Invoking the word ‘tulips’ will not change the subject into Tulips. Get used t crypto, it’s our future and salvation.

  13. Steve M says:

    You left out the most crucial statement Powell made earlier this morning, when he was served a cup of coffee and said “I want more sugar.”

    Sugar = sweet
    Sweet = lower rates

    He was broadcasting the hint of a pivot. Just as I thought! I knew Powell and the Fed didn’t have the guts to go all the way. We’ll be at 1 percent by next summera!

    The preceding was a public service announcement. It isn’t a true Wolf comments section until someone suggests a pivot. Done.

    I’m thinking CNBC and WSJ might pull out this comment as a leading indicator and the S&P jumps 15-20 percent.

  14. Phoenix_Ikki says:

    Despite the hawkish tone by Papa Powell today, why do I get the feeling that the stubbornly delusional market will once again play up the pivot narrative all over again before year end, or rather they see the FED as gentler real soon…once again reinventing their own fantasy.

    Papa Powell should’ve gone in with full pt increase to add some meat to that hawkish tone, maybe then it will have a better chance to break this delusional market if he wants them to feel that burn..

    • phleep says:

      Great point! A full point would be just the slap of cold water to induce some sobriety. It is not just inflation that is not cooperating — it is the current market reaction to this repeated signalling.

    • Depth Charge says:

      It’s too bad Powell and the FED don’t jawbone on the way down like they do on the way up. He wouldn’t even have had to do the full point, he could have just said “yeah, we’re doing 75 basis points today, but we’re thinking maybe 100 basis points in December if necessary, perhaps even more. We’re very flexible. We could even do an emergency 200 basis points in the next couple weeks if we want. Again, very flexible. Thanks for coming.”

      • Phoneix_Ikki says:

        Yup I am with you on this. Did a great job jawboning all the way up…”Not thinking about thinking raising rates” anyone?

        He is a lawyer, he should know better. If you know you’re dealing with a market that’s highly delusional on pivot narrative and will smell any signs of a doubt in the tone to run away with its pivot fantasy, couple with consumers, the ones with asset that are still enjoying wealth effect keeping inflation high, the only way to go is to go beyond a shadow of a doubt the only course is QT and more severe rate hike coming, even if it’s jawboning or bound to course correct later. Either he is so feckless about being super hawkish or this is really the best he can do, which is pretty sad in itself.

        • Auld Kodjer says:

          “A lawyer with a briefcase can steal more than a thousand men with guns.”

    • Here it comes says:

      It’s easy to think the market works like this, but it doesn’t. It’s driven by sentiment, which is emotional, irrational, and often goes the opposite direction of what makes sense. The Fed is only one influence (and a small one) in the overall sentiment.

      That said, today the market finally made a move that dramatically lowers the probability of new all time highs (from an objective analysis perspective). The move today may not seem overly important, but in fact it finally made a major invalidation for a large scale bullish move to the 5000+ region.

      Our expectations now are to continue the whipsaw over a few more months with the market probably moving up to the 4000+ region, before a quite serious “crash” like move that we have not seen since Covid, which will probably bring us from the low 4000s to the mid 2000s.

      This will complete the first wave down of the bigger first wave down (so it’s really just getting started).

  15. Will V says:

    Wolf, with deepest and most sincere thank you for educating us on these issues in an unbiased way. Your thoughtful reports caused me to deleverage my “hopium” blind faith that “stonks” only go up. Starting in February of this year i reverted my investments and all personal decisions to one of a conservative nature and it has been the best decision ever. In august my friends and family laughed at my fiscal conservativism (S&P500 at 4200) but you guided me through with logic and education to analyze the situation rationally. I didn’t make lots of money but didn’t lose what I had worked for.

    • phleep says:

      The Wolfster rules! I’ve made money this year in markets, double digits, though on a small stake.

  16. Prairie Rider says:

    Citius, Altius, Fortius. That is the Olympic motto. Faster, Higher, Stronger.

    “The first is, how fast to go. The second is, how high to raise our policy rate. And the third, how long to remain at a restricted level.” Chairman Powell seems to have the Olympic spirit these days.

  17. Cytotoxic says:

    Today’s word is “Pivn’t”*

    *Not an actual word.

  18. Jdog says:

    The people financing the Federal debt are currently losing between 4-5% for the privilege of doing so… That means they are losing twice as much as when they were loaning the government their money for free…. How much longer do you think that is sustainable?

    • Wolf Richter says:

      They’re losing 4-5% in a year due to loss of purchasing power.

      Investors in the Nasdaq lost 3.5% today in one day due to asset prices. And they’re down 35% in a year due to asset prices. And on top of it, they’re losing 8% due to loss of purchasing power.

      In this investment environment, you’re trying to find the least shitty investment.

    • Swamp Creature says:

      Judy Shelton was on CNBC this morning and said what I’ve been saying for a long time. These interest rate increases aren’t going to do squat to bring down inflation. They are leading to more shortages in goods and services and hence higher prices. Nothing will change as long as the Congress and Executive branches keep spending like drunken sailors. The increase in cost of doing business due to these rate increases will just be passed on to the consumer in higher prices. This happening now and will continue into the forseeable future.

      • billytrip says:

        I could not disagree more with Ms Shelton, at some point the excess cash in the system will be used up and then the “buy regardless of price” model will fold like a paper napkin.

        IMHO the Fed is going to do what it has to do, i.e. create a recession. It will succeed, it’s just trying to go slow so as to not overshoot too much.

      • JeffD says:

        Which is why increasing the pace of QT makes the most sense. If the stock market loses another 30%, some responsibility will likely return.

      • Swamp Creature says:

        Yep, it’s nice to have someone like DC, who, like me, tells it like it is.

      • Swamp Creature says:

        I may add that Charles Paine (commentator of Fox business) said, and I agree, that unless productivity increases, which it is not happening now, rate increases will have no impact on dampening inflation. The experiment in MMT which was implemented during the pandemic was a failure and is now coming back to haunt us. We are entering a Darwinian period of “Every Man for himself” and “Survival of the fittest”. This will not end well.

  19. Jess says:

    Is this the same guy who recently said, ‘we not even thinking about thinking about raising interest rates’

    • Depth Charge says:

      Now he’s “not even thinking about thinking about pausing.” He’s good at not even thinking about thinking.

      • rojogrande says:

        Wow DC! I can’t believe you’ve acknowledged Powell has a good quality.

    • Swamp Creature says:

      Having J Powell as head of the Fed is like putting Count Dracula in charge of your blood bank.

  20. josap says:

    Powel said months ago .75 in Oct, .75 in Nov, .50 in Dec.

    Looks like it will be .75 in Dec, Jan, Feb, Mar. Or more if wages continue to go up and employment stays too high. The Fed said they want to see 5% unemployment.

    They are far more afraid of wage inflation than price inflation.

    • Miller says:

      Wondered about this but then again, the Fed’s also been using the QT hammer pretty hard and the pace of tightening is picking up. While interest rate hikes seem to be more scattered and hit both wage and asset inflation, seems like QT is more tuned to bring down speculative asset prices and pop the asset bubbles in general for the wealthy speculators, having much less effect on wages. Same with the reverse repos.

  21. Thomas P says:

    Do they still talk about the “wealth effect” of a rising stock market? Trying to tamp down wages is one thing, but would they ever utter the thought that a decline in the market would lessen aggregate demand?

    • Wolf Richter says:

      They CANNOT say that while they’re employed by the Fed, but they know it. They can say it after they leave tho, and they do. Former NY Fed president Dudley said that in one of his editorials at Bloomberg a few months ago. Others did too.

  22. Old Engineer says:

    Positive spin.
    The article headline from “Business Insider” :

    “ Fed signals potential slowdown in interest rate hikes as soon as December”

    • Magnesium Sulfate says:

      CNBC had something similar in their post-Powell reaction. Then I heard the same thing on NPR on the drive home, expect a reassessment/pivot in December basically. If I didn’t read this website on my breaks, considering how slammed I am at work and that I can’t listen directly myself, I’d have no idea of the Fed’s true statements and intentions. Thank you, Wolf, for actually quoting Powell (and others) and not spinning it into garbage like everyone else.

  23. Martok says:

    Wolf – You have been right for a long time, and I have kept my powder dry for a very long time too – Thanks!

  24. John Galt says:

    I have to say, this has been a highly fascinating thing to watch unfold. From over a decade of falling rates to an inflationary disaster, to now some semblance of austere monetary policy. I certainly don’t appreciate it, and as a 34 year old, I’ve had to put things like home ownership on hold. The generational impact of this Zirp experiment will not be noticed until the fallout is able to be charted and analyzed many years later. Now we have a Fed that has it’s back to the wall, a stock market that is flatly delusional, and an “economy” that refuses to get the message.

    It seems that our country must repeat the same mistakes over and over again. I remember learning about the “Savings & Loan Crisis” of the 1980’s. The takeaway from the the fallout was that bankers had pulled forward the wealth from the future, to enrich the present. This created a value vacuum that ultimately had to be paid for at some point, as wages and income could not keep up. Then when I first entered the workforce we had 2008, again same story, different players. Now after over a decade of Zirp, how are we going to pay for all that wealth that we pulled out of the future? It seems insurmountable.
    Truly fascinating times, and I’m deeply concerned for the long term outcome.

    • Halibut says:

      34? Stay away from “financial advisors” and you’ll be fine.

      • Cas127 says:

        Learn Chinese as fast as you can.

        In the end, the *only thing* that matters is productive efficiency and China has been annihilating America in that regard for 20+ years.

        Despite decades of warnings, the US is about 33% to 50% of the way into financially destroying itself finally and definitively.

        Unfunded entitlements were always likely to finish America off…the last 20 years of grotesque DC failures (failed trade policy, failed wars, failed Fed, failed CDC, etc) have made it a certitude.

        If the internet had arrived perhaps 10-20 years earlier the DC-MSM-Deceived Public human centipede might have been killed off in time to save the Republic.

        But it didn’t.

        • rojogrande says:

          But wait, I was supposed to learn Japanese fast 35 years ago. My brother actually did learn Japanese in the 80s.

          I don’t know what will happen in the future (neither does anyone else), but I do know that China is demographically getting old before it’s gotten rich economically. China is a middle income country, with vast rural poverty, and aging fast. Japan, at least, is rich.

          As dysfunctional as US politics is right now, I don’t see China’s dictator-for-life model working out very well long term. China’s picked the low hanging fruit in its development, we’ll see if it can make the next step with its political structure. For all of the US’s problems, China has plenty of their own and all we can do is watch what happens in the coming decades.

          The only certainty is that nothing is a certitude.

        • TonyT says:

          Companies are moving out of China as fast as they can — look on China Law Blog for details. I’m seeing it in COO, e.g. latest industrial power supplies we received are made in India (never that that before, it’s always been China, Thailand, or Taiwan).

    • HowNow says:

      John G., I don’t get your conclusion, “The takeaway from the fallout was that bankers had pulled forward the wealth from the future, to enrich the present.” regarding the S & L disaster.
      It was the result of de-regulation: the S & Ls were allowed to go from largely residential lending to commercial. Some went hog wild and weren’t able to control the lending process. Developers got paid too early (some didn’t bother to even start construction), appraisals were daisy-chains of higher and higher valuations (the S & L lenders didn’t know they were being fleeced), and then some selling of securities to depositors who thought their investments were federally insured. Chas. Keating went so far as to make giant campaign contributions to prevent regulators from stopping what he was doing – from pillar of the community to inmate for 5 yrs. No, it was about the intentional breakdown of regulation, something that would make people like Ayn Rand happy. “Get the gummint off our backs!”

      • hillcountry says:

        Good comment as far as it goes but this one, an Amazon book review, drives the nail a bit deeper (as does the extensive detail in the referenced book).

        “I bought my first copy of Pete Brewtons “The Mafia, CIA & George Bush” in the election season of 1992 from the author at a folding table set up in front of the Harris County Courthouse. Retail sales of this accurate history were deemed ‘inflammatory’ and barred from major booksellers inventory. I was a newly registered engineer in the eighties and had direct, personal knowledge of at least a dozen individuals and over fifty of the fraudulent real estate tranactions [sic] that are documented by Mr Brewton.”

        “I was introduced to the concepts of “other peoples money” and “creative bankruptcy” by these very players, years before these terms were part of the popular vernacular. I was a first hand witness to these intentional crimes and am very knowledgable of the processes involved. So endemic was this condition in Houston that it was near impossible to avoid contact with these dirty players. The “S & L Robbery” was the model for the Enron, Dot Com and 2008 Banking TARP frauds that were to follow. I have bought a second copy from Amazon to share with those who are recently awakened to this criminal syndicate presuming to rule the entire world.”

        “I would state under oath that “As to all of the persons and events in this book that I have PERSONAL FIRST HAND KNOWLEDGE, I verify that every statement presented in this book is 100% correct and well documented”.”

      • John Galt says:

        Well I was *barely* alive during the 80’s, so I’m no expert, but that’s the line I’ve heard for years now. As far as “getting guvmint off our backs” yeah, I think the Fed could have been FAR less intrusive into our economy. Their financial engineering has lead us to a point where the story has no happy ending. They seem to have been the puppet masters of far too many monetary calamities, from 1929, to the great inflation, to the great financial crisis in 08. . .one thing remains constant: poor monetary policy, and a unit of currency that is consistently holding less and less value. Why do we need the Fed again?

        • Hardigatti says:

          JG., my understanding is that prior to the Fed, i.e. the 1800’s, there were regular bank failures but very little inflation. One dollar in the 1810’s was pretty much worth the same in the 1890’s. The key “problem” was that not only the depositors but also the investors in the banks lost all their money when a bank collapsed.

          The creation of the Fed fixed that. It allowed bank investor/owner losses to be rolled over to depositors and tax payers via bailouts or inflation. With this key “innovation”, today’s dollar is now only worth 3c compared to 1910.

        • HowNow says:

          Hardigatti, very wrong info. Inflation in the 1800s through the 1930s was all over the place: (from the Bureau of Labor Statistics CPI chart of USD Inflation Since 1800 (Google it…)
          21% in 1810, 13% 1814, 24% in1863, 1912 – 1915 approx. 18%. And bouts of deflation: 16% in 1805, 13% in 1814.

          So, when people make these authoritative comments, they should actually have some facts. Bank panics were common, especially in the 10 or so years before the year 1900. The earliest and least effective versions of a central, federal bank were first established soon afterward.
          It wasn’t a matter of choosing rock solid money or inflation that turned $1 into $.03 over 200 years+. People lost their money when a bank failed. Heartbreaking but no protection. Want to return to that?

        • VintageVNvet says:

          This for HN:
          Prior to ”banksters” establishing the FRB, the thrifty ones of WE the PEEDONs with any brains and real life experience put their gold, etc., into jars and/or hid it well, as is evidenced by discovery of such cached gold, etc., from time to time. When the next crash came, as it always has for ever, they took out the gold and bought stuff cheaply. This came to me from two sets of great grandparents, one set first generation immigrants mid 19th century, the other set with some ancestors who had come much earlier as ”indentured servants.” Both sets of GGPs became very wealthy doing exactly this after years of work, albeit very skilled work…
          The FRB was set up to be and continues to be a ”legal” way to steal that wealth from those who actually produce goods and provide services, and put that wealth into the pockets of the paper monger puppets and their masters, the group known as oligarchs, as is obviously the case.
          Really rich folks don’t care about inflation because the vast majority of their wealth is not in currency denominated assets, but either in real stuff whose value matches or exceeds any inflation, exactly why rich folks buy and hold millions of acres of land, etc., etc.
          WE, in this case all of us who work and are thrifty don’t need the FRB; what we NEED is actual government of LAW and following policies and procedures designed and strictly implemented to exclude the crooks that don’t follow safe banking practices and lose ”other peoples” money, and then put them in jail when and if they do screw up.
          Right now we have legal theft that cannot be allowed to continue with NO consequences for the thieves.
          ( And BTW, one of those family fortunes was almost totally lost through the incompetence of bankster crooks who had the fiduciary responsibility to manage the trusts, and did manage to reduce them by about 95%…and suffered NO consequences whatsoever. )

    • El Katz says:

      JG

      Every credit transaction is pulled ahead demand. That’s why automakers (when supply was available) could never stop the low APR’s, leases, and cash incentives. If they did, sales would drop off a cliff.

      I remember at the end of one fiscal year, the senior leadership took that exact tack…… and folded 10 days later when sales went through the floor. The only people that were shocked by that occurrence was the genius who ordered us to do that to “maintain profitability”. We spent twice as much as we “saved” to spin the sales momentum back up again.

  25. Pants_relief says:

    Maybe it’s the couple beers I’ve had but… heres what I’ve observed over the months of reading this comment section. (Please forgive me if I’m not obeying the comments mandate).

    Those of you condemning easy money and speculators are right. You’re correct, down to the last line graph. Things should go the way you say they’re going to go.

    Those reckless, undeserving speculators will pay.
    The house flippers will fail, and the streets will run red with their blood as their hard money loans reach maturity.

    Except I’ve got this feeling it won’t go that way.

    Politicians will only stomach so much QT.

    At our core – we are a bunch of fat, lazy, credit-card swiping, instant-gratification seeking 85-IQ-having big-Mac eating morons with zero awareness of consequences.

    When politicians sense that the mass of morons are panicking – the “leaders” will exert all of their political pressure onto the fed and we’ll find some other way to swipe the credit card again and again until Jack in the box tacos cost $100/each.

    We’re not a disciplined nation in 2022, and few have the fortitude to tighten belts and endure a downturn.

    I believe you are all theoretically correct. And you deserve to be right because you’be probably got your own households in order.

    But Americans don’t have the stomach for consequences.

    TLDR: The pain won’t be as bad as it should be because I’m inebriated and so is the general public.

    • HowNow says:

      P_r: There’s something inherently wrong with Jack in the Box selling tacos whether one dollar or one hundred.

    • random guy 62 says:

      Literally laughed out loud.

      Tend to agree. Most of us here just want to see some semblance of sanity in markets again. We want to see some fiscal discipline. We are tired of rewarding stupid and over-leveraged idiots. We want to see saving money make sense again. I don’t root for markets to go down, but I do breathe a breath of relief when they find their way closer to reasonable valuations based on actual fundamentals. It renews my faith in the system being functional.

      You are probably right. We don’t have the stomach for the correction that “should” happen. I think it’s human nature, and maybe part of a generational cycle. My observation is that the folks who came of age during the boom times of the 1950’s-70’s absolutely refuse to come to terms with the idea that their standard of living might be in decline because of waning national competitiveness. They want their unlimited health bennies, paid for by someone else. They want their 20-30 years of lounging by the pool in Florida before the big dirt nap. They want to drive wherever they want any time in a big comfy truck. They want to eat the best food all the time. And they don’t want to pay any taxes, dang it! Taxes are things other people pay!

      I tend to think we are close to (or maybe in) a correction that wakes the average person up from their zombie consumerist habits, but this circus could still go on for decades… we’ll see.

  26. AB says:

    Today’s guidance was garbled. The Fed is vulnerable; stuck between high inflation and a financial crash.

    The moderation of future hikes, carefully telegraphed in advance and planted with the Fed’s consent by the WSJ, was incongruous with a hawkish FOMC.

    In an effort to make some sense of this, my interpretation is that the Fed wants to step back from 0.75% increases, not so hawkish, and was fearful of losing control of the long end of the curve. It sought to offset this concern with the prospect of a higher terminal rate at reduced increments on an extended time frame. Throw in a hawkish presser for good measure.

    We were previously told inflation was transitory; now we hear the narrow path to a soft landing has narrowed.

    • eg says:

      There will be no soft landing.

      • Spencer says:

        It will be stagflation, business stagnation accompanied by inflation. We will not get to 2% inflation in 2023.

    • WolfGoat says:

      I think you nailed it AB…. walking a tight-rope! 50 in Dec, 25 in Jan & Fed, with a pause in March for the spring home buying season. People will get use to 8% mortgage rates and housing values will have fallen.

      My quick take on it.

      • OutWest says:

        “with a pause in March for the spring home buying season.”

        Right now even at today’s rates, I can’t imagine what a spring home buying season would even look like. Nothing will sell until prices drop substantially in my opinion.

  27. Bs(ini) says:

    Very smart thinking about the ZIRP and the future purchases brought forward. I believe that we still have strong consumers and interest rates well below inflation rate and the persistent inflation that’s happening. Christmas may be an area that finally shows some slowing will see .

  28. dang says:

    Inflation is actually deflation when looked at upside down for the everyday people. The great depression deflation, that dominates the excuses for fearing deflation, were different. The cause was similar, excess monetary stimulus, but the collapse of asset prices have not accompanied the cessation of excess monetary stimulation.

    I seem to be talking myself into another fear added to my life long list of fears that I have collected during my lifetime.

    I “see” asset prices at the edge of a precipice. Like a hiker in the dark, he can sense it but has not yet fallen down the face of the cliff.

    • dang says:

      The decision to hike 75 bpt was a no brainer as is hiking the same at the Dec 14th decision. They shouldn’t dawdle when dealing with this economic disease that QE caused. IMO

      Inflation is a disease that destroys the monetary foundation upon which every day people rely.

      • dang says:

        There is nothing more beautiful than the every day people.

        Who, generally speaking, aren’t doing anything at all except changing the world,

    • Turtle says:

      Well, my portfolio has been deflating. Hmmm

  29. ROYCE says:

    So good. A Marketwatch article today:

    “Opinion: How Powell pivoted away from the Fed’s dovish message and tanked the markets”

    I know it’s rather played out, but the Ross “Pivot!” couch scene is just so apt right now. Lots of false pivot talks when Powell has been clear in his messaging for a while now.

  30. THEWILLMAN says:

    Is it fair to assume that ROW is about to get destroyed?

    If the reserve currency is also the most hawkish currency in a inflationary environment – how does anyone else keep up? Raising rates doesn’t do much if there is no demand for your currency in the first place as everyone runs to dollars.

    • dang says:

      The non-reserve currencies are casualties in the world wide war against inflation. To pretend that the other currencies are not worthy of suffering from their currency profligacies, demeans their integrity.

    • Miller says:

      No. Inflation is the one true arbiter of a currency’s actual value (since a currency’s only true value ultimately is in purchasing real goods and services), and with inflation still being this high in the US, clearly there’s not a run to dollars, nor to any other specific currency. The way our econ prof explained it in strong terms, the whole idea of a reserve currency is bit of a myth since there’s never just one reserve currency, but several in the baskets held by institutions around the world, public and private. When held as a reserve, it’s just another asset, like commodities, equities or even metals, that can go up or down although ideally (for a functional currency) its value shouldn’t fluctuate too much, unlike the other components that of course tend to fluctuate a lot more relative to a stable currency.

      The fact that dollar inflation is still raging in the US, on top of massive inflation last year (much higher in 2021 than for Europe or other parts of the world for example), shows that the USD is not doing a good job fulfilling the role of a stable “fallback” currency and a solid store of value, since it’s rapidly losing its ability to purchase actual goods and services. This of course is a main reason just why the Fed is getting so hawkish, to fight that erosion of value and to try to return to price stability, which is what Volcker did. (The Forex markets are a mess of their own and some like the DXY, are limited and very speculative–inflation gives us a much more realistic picture of a currency’s actual value.)

      It’s also worth pointing out that some currencies right now have much lower inflation than the dollar, ex. the Swiss franc, renminbi, won, baht, even the much-maligned loonie up in Canada have been having less inflation (partly because BoC has been even more hawkish than the Fed). As practical matter, it means that holders of these currencies in their pockets and bank accounts have had much better preservation of their buying power and affordability of real goods for their earnings than holders of dollars. (And again, the big inflation spike in the US started earlier and higher than even for the Euro and GBP, though of course the pound has been getting hit esp hard in the past couple months) So there’s no reason why people with these currencies should rush into dollars when the USD is losing its ability to buy goods even faster than theirs is (and the difference in inflation is still too small in most other cases to really make a difference)

      • WolfGoat says:

        I see your point about the strength of a currency relative to the inflation rate within a country, but the dollar is at a 15 year high relative to other currencies (DXY) so it is maintaining buying power in the world and yes, people still want it!

        It has risen from 90 to 112 since May, so we are exporting our inflation to the world and maintaining our standard of living. How much longer that will go on is debatable, but we haven’t collapsed yet.

        • Escierto says:

          Thank you, Wolf Goat, for pointing out the facts.

        • Miller says:

          Again, the forex markets themselves are full of speculation and distortions, and the DXY is even narrower than most. It tells us just about nothing how strong the dollar is at holding its purchase power, it doesn’t even tell us how the dollar is faring against a broader basket–forex by it’s nature gives us only a limited picture. Again, many other currencies are having a lot less inflation than the US dollar is. So objectively, holders of those currencies are having better preservation of their purchase power, and the dollar is weakening against them in the only way that matters–the ability to purchase real goods and services. A currency is nothing more than a token, and the USD token is purchasing a lot less relative to a year ago compared to many other tokens out there.

  31. rojogrande says:

    Excellent report and summary, thanks Wolf. We’ll see how long before the pivot/pause talk flares up again. Bloomberg has really been pressing it. I got a newsletter from them yesterday stating peak hawkishness is in and you need to inflation protect your portfolio. I’m glad Powell clearly and directly addressed those issues today.

    • dang says:

      I’m sure I’m wrong but the best portfolio to hold right now is short term treasury bonds.

      I find Bloomberg’s recommendations are usually yesterday’s news like the CNBC commenters recommending buying when the “market” has an up day while cautioning against holding the dog of the day when the market is slumping.

      • dang says:

        I may as well as unwrap what I think I heard what Powell said:

        Asset prices need to fall, they are overpriced because the near time monetary policy inflated a significant number of asset bubbles with the foolish, cockamamy belief that the bubbles weren’t inflationary.

        Well it turns out, they were.

        Now, the Ivy candies on the FOMC have consulted their professors and have decided that they screwed up and should reverse their former enthusiasm for monetary stimulus.

        • dang says:

          Also I “see” the knube of understanding that the only labor group that is organized is an incompetent management that, god forbid, are in charge of hiring.

          Bred to hate unions, now to be forced to understand that the basis of our freedom is a well paid citizenry.

          I’m not carrying the torch for the legacy of the corrupt unions that celebrate NAFTA II with their political buddy that promised them an exemption to the estate taxes if they championed offshoring as an acceptable practice.

    • Miller says:

      Agreed, that sort of straighter-shooting to cut down the pivot talk is exactly what we needed

  32. eric says:

    What was that he said?
    Job openings declining is the new metric, not unemployment?!
    Discuss slowing next month or January?!
    What more do you need?…The Pivot Cometh!
    The New Narrative is born.

    • Cookdoggie says:

      I thought that was interesting too, that their idea of labor supply and demand balance is just a reduction in job openings, whereas I think it’s a 4.5% unemployment rate. Quit moving the goalposts JP.

  33. R2D2 says:

    It look like we’re closer to the end of big US rate hikes than the start. The S&P500 looks to me like it could be forming a bottom, as it drifts sideways for a bit, bouncing around the 3500-4000 range.

    • Halibut says:

      Or, it could be forming a 2000 bottom.

      • Cas127 says:

        Well, Facebook went from a triple digit PE to an 8…so I would say that “bottoms” of 70% to 90% off peak prices are possible.

        (In an insane history, the current insane thing about Facebook is that it is quite possibly currently *undervalued* after a lifetime of insane overvaluation. FB has actual real revenue/income in the billions and billions. Even if advertising takes a very bad hit, 8 PEs are what price capped, regulated utilities get…).

    • dang says:

      Well, darn, good luck with that high risk strategy.

      I’m having trouble feeling empathy for the deer in the headlights individuals that embrace a high risk bet at this late hour when the consequences have been so clearly telegraphed.

    • dang says:

      Perhaps

      I reiterate a point I made earlier that inflation is like an insect infestation. At first one tries the kinder and gentler remedies which fail spectacularly. Like Volker’s ghost banshee wailing about the tribulations experienced 50 years ago when inflation was first formally recognized as an economic malady within the framework of mathematical modeling.

      • dang says:

        The point being, that ultimately one has too kill all the insects to halt the infestation. My guess about the future path of the decisions by Ivy cupcakes who presided over this cluster is uncertain.

        Their first instinct is to calculate the impact of their “decision” on their families fortune. The only contact many of these actors have ever had with an average American resulted in them calling the cops to report a suspicious character.

    • Turtle says:

      There’s absolutely no way to spot a bottom. Don’t fool yourself. I just keep putting in every month no matter what’s going on because there are no crystal balls.

  34. Lune says:

    At this point anyone believing in a pivot is just plain delusional. Powell couldn’t have been clearer if he brought a bull on stage and shot it in the face. Anyone who still believes in a pivot deserves their losses.

    That said, I wonder if the Fed should focus less on the FFR and more on increasing QT. The rapid rise in short term interest rates are now leading to flat and inverted yield curves. He needs to do more to raise the far end of the yield curve, if for no reason than to have more leeway to raise short term rates.

    • Cytotoxic says:

      “Powell couldn’t have been clearer if he brought a bull on stage and shot it in the face”

      Someone please feed this into an AI art generator.

    • dang says:

      Since I grew up on the right side of the tracks, I appreciate your lively descriptions, describing what seems to be concern about the, apparent, reckless recent Federal Reserve intervention in the private market place.

      I agree it hasn’t been appropriate for the last 15 years or so. Welly, isn’t that the way that life seems to work. Rebuilding after every, daily catastrophe.

      I suspect that is probably the spice of life.

      As far as what the Fed should do, I defer to the 100 or so pHD economists that work at the Fed and will solve the mess they made.

      • Michael Auten says:

        Humpty Dumpty sat on a wall,
        Humpty Dumpty had a great fall;
        All the king’s horses and all the king’s men
        Couldn’t put Humpty together again.

  35. MattF says:

    I am glad that Powell has stayed the course. My question is how long he can? I’m asking this because I would like to hear the answer, not because I’m arguing a point.
    In FY22 the budget deficit was $1.4T with about $1T in QE. That meant that there was a market for $400B in federal debt at a price of about 1%.
    In FY23 there is an estimated $900B deficit with an extra $960B of debt available due to QT. There may be even more federal debt for sale as other nations (e.g. Japan) sell US debt to defend their currency.
    At what point is the market saturated? The mantra is that there is always a buyer for the right price. That is only true within reasonable levels. Going to the ridiculous, there would be no buyers for $20T a year. So somewhere between $400B and $20T the market will break. And well before $20T, the rate would be so high that debt would be unaffordable.
    Has the world ever bought $1.86T ($900+960B) of US debt per year in a non-QE environment? What kind of rate would that require? Where would that kind of cash come from? And if foreign nations are net sellers rather than buyers, then what? Is there an extra $1.86T lying around domestically?
    I laud Powell’s ambition, but what is the theoretical point where it breaks down, and why do you think we will not reach that point?

    • Jpjpjp says:

      At a higher rate there will always be a lender, alot of money currently in equities that could look to the “risk free” UST bonds as a very nice short term investment.

      Another interesting point is that higher rates technically lower the current value of most of the US debt. While new debt and debt that needs to be rolled over might become expensive; most of the US debt which is at very low rates become discounted heavily and the net effect may be that all UST bond values actually go down.

      Wonder if there is a data available to calculate the current value of all UST bonds at various different market interest rates.

    • Flea says:

      Easy fix eliminate fiat currency world wide,then cbdc digital currency everyone gets a haircut . No Problem

  36. VT says:

    “This is a tacit admission – which must never be spoken out loud during the press conference, neither by the press nor by Powell – that the huge bout of QE had something to do with this raging inflation, and that this huge bout of QE will now have to be undone.“

    Comforting to know you can get away with this type of responsibility dodging at the highest level of government and politics but this type of behavior should not be allowed not at home, school, or work. Truly leading by example.

    • dang says:

      Perhaps the indictment of the Fed malfeasance that you attribute to corruption is accurate. I tend to go with Occam’s Razor in which the malfeasance is more likely to be incompetence. This is a hallmark of an autocracy like the US rebelled against in the first place.

      A naive bunch of hicks that know honor, love, and duty is the secret ingredient.

      • HowNow says:

        dang, the “honor, love and duty” trope is a complete fiction. Rednecks are some of the biggest bullshitters of all.

  37. SeattleTechie says:

    Yeah I caught the sudden drop too after powell said rates will likely be higher than forecasted.

    But I keep thinking about 10 year yield. Has it peaked? It has stuck at 4% for a couple of months now. Is this it? No matter how high the fed funds rate goes, if 10 year is stuck at 4% then it doesn’t help much.

    There are also rumors of fed potentially selling short end treasuries and buying long end which will drive that yield even lower further inverting the yield curve.

    What needs to happen to get that to 5% or even 6 or more? Is there a realistic path to that?

  38. Bearbear says:

    Why cherry pick his speech? He mentioned about considerations regarding financial conditions but nothing was mentioned. As usual, one sided analysis boring

    • Wolf Richter says:

      Bearbear,

      “Tightening financial condition” is the GOAL of monetary policy. That’s the ONLY WAY monetary policy is transmitted to the economy. I explained that a millions times here. The Fed discussed every time whether or not financial conditions have tightened enough yet, and they haven’t. That’s what Powell said, yes, financial conditions have tightened some, but we have more work to do to tighten them more.

  39. Michael Auten says:

    Total market capitalization on Oct 13, 2022 : 46,153 billion. 
    Total Market Capitalization on Nov 2, 2022 close: 49,853 billion
    The difference is roughly $3.7 trillion.

    Total Market Cap when taking the 52 wk high of each stock: 74,693 billion

    So if you imagine the market as a stock, it has fallen from 74 to 46 and then bounced back to 49. Does a dead cat bounce?

    SP500 Nov 2, 2022 – SP500 Oct 13, 2022 = 3770 – 3500 = 2.7 trillion.
    The remaining $1 trillion can be explained by ADR trading on US exchanges. 

    So, who got the biggest pie of this 3.7 trillion increase in the span of just 15 days. 

    Apple +147 Billion; 

    Nvidia +57 Billion; 
    Other Semis: +155 Billion;

    Semi 52 wk high market cap 4386b,
    semi oct 2 1986b, semi current market cap 2200b,
    down from post pandemic peak of 5500b.
    Dead cat bounce, YES!
     
    SEMICONDUCTOR STOCKS have been biggest PUMP AND DUMP SCAM during this post pandemic madness.

    Banks +300 billion:
    this is akin to small bounce as banks are down massively from a 52 wk high of 3800 billion to 2400 billion on October 13 and Nov 2, 2022 Capitalization of 2700 billion. So, it’s not a really great rally. 

    Elsewhere, the rally is like +15/20% but that is after massive drops in the values of companies like CCL, Intel, Bank of America, etc. 

    Only SP500 futures short sellers are hurt during this rally, IMO. Others, not so much. No one gains much because they are still sitting on massive losses. 

    Top 7 stocks in FATMAAN group, which had the highest market capitalizations in the SP500, did not gain much except Apple, which is a welcome sign.

    Apple is just a massive SP500 pump and dump placeholder, and its time is a coming :D

  40. david pare says:

    I liked the question from – I forget who – asking about how Fed rates would affect energy and food prices, which of course are of primary concern to normal people.

    The sense of the response, as I recall: well of course Fed rates won’t address food or energy prices. But the rate increases will help keep “inflation expectations anchored.”

    Glad to see Powell understands. It is almost as if the Fed is powerless to affect at least half of the underlying problem: a shortage of oil. Energy = Civilization.

    It was amazing to watch Operation Lockstep in EUR/USD, Gold, and SPX during the course of the press conference, and after. But crude seemed immune to all the games.

    • Wolf Richter says:

      Inflation has moved into services, and services is where 2/3 of consumer spending takes place — healthcare, insurance, housing, repairs, etc.

      Energy inflation in the US has calmed down. Crude oil prices have plunged. Gasoline prices have come down from the peak, natural gas prices have plunged. OK, people who use heating oil are going to pay more this winter…

      And that’s what Powell referred to when he was talking about “inflation in services”:

      • WolfGoat says:

        I always get a bit confused around utilities and the Core CPI (excluding food & energy). I guess utilities are NOT a ‘service’ and are part of ‘energy’….

        Measuring Price Change in the CPI: Household energy

        The Consumer Price Index for household energy is a component of the fuels and utilities index, which is in the housing major group of the Consumer Price Index (CPI). The household energy index measures the price movement of residential energy items used for heating, cooling, lighting, cooking, and other appliances and household equipment. Together with the index for motor fuels, it makes up the special index for energy.

        • david pare says:

          Powell spent a bunch of time on the surprisingly tight labor market. I get the sense he has no idea why the labor market is so tight. I certainly haven’t seen anything like it before either. If we knew the reason why, we might be able to predict when the situation might change – and then trade on it.

          Payrolls are tomorrow; my spirit guides are telling me that the worker shortage will probably get worse, at least in the near term.

          Unnaturally tight labor market = Fed raises rates higher. Powell said this, more or less. Perhaps he got the payrolls report in advance? And of course, no pivot.

      • david pare says:

        Definitely oil has come down – temporarily – from peak, but at $90/bbl it is still almost double where it was in January, 2021. I claim this is just a retracement during an uptrend.

        Here is why. Do we think, if Biden stops draining ~1 mbpd from the SPR post November 8th, this retracement in oil price will continue? My guess is no. Oil market is not particularly elastic. 1 mbpd matters a lot.

        Plus, the Biden admin doesn’t like cheap oil. I know this – only because they’ve said so. Higher oil prices help encourage the all-important transition to EVs. Their words, not mine. They want higher oil prices. Just not before November 8th.

        So given all that, I’d guess energy prices will probably scream higher soon enougn. Saudis aren’t producing any more, Russia is being “sanctioned”, and the Biden admin seems anti-oil-production.

        The Fed can’t print energy. That’s the real problem. And Powell appears to realize this. I was happy to see him admit it during his press conference. They know whats up. All they can really do with policy is “anchor inflation expectations.” Sure they can also crush the property bubble too. That seems to be unfolding right now, as you have pointed out in glorious detail. And the margin debt too. Quite the drop there. I’m guessing a bunch of leveraged trades aren’t profitable with short rates at 4%.

        Of course, I could be wrong about the near-term prospects for oil, and its effect on inflation. As always, the market is the ultimate judge, jury, and executioner, and if I am wrong, I’m going to be spanked. Vice versa, too.

        • Lune says:

          Russia’s oil is only sanctioned by the US. So it sells the oil at a discount to China and India. They in turn buy less oil from the Saudis who then sell that excess oil to Europe and the US.

          and that’s just for oil. Europe is still buying plenty of Russian natural gas. IOW, while the sanctions are forcing Russia to sell their oil at a big discount, it hasn’t actually removed much of their supply. Long term, it will, as the sanctions prevent export of the high tech machinery needed to support drilling, so as things break down Russia’s output will decrease. But in the short term their output hasn’t decreased.

          While Saudi Arabia wants to make life tough for Biden hoping the Republicans come back in the midterms, they’re acutely aware that oil actually is very elastic: keep the price high enough and people drive less, buy more fuel efficient cars, and switch to alternative energy ( not to mention unconventional oil like shale becomes profitable to drill again).

          While Biden let oil go up after the elections, I’m betting it’s equally possible Saudi Arabia let’s prices go down after the election. Last thing they want is for Americans to stop buying gas guzzling pickup trucks, which they have once gas prices went up.

        • Peachy says:

          Also, what happens to oil if and when China stops locking the whole country down?

  41. graphic says:

    “we’ll want to get the policy rate to a level where the real interest rate [federal funds rate minus core PCE] is positive”

    When might that happen? We can say that the average monthly PCE index increase in the first nine months of this year has been 0.400%. The median increase has been 0.375%.

    If we take the lower number and feed it into the values for the last three months of the year, then the annual core PCE inflation for Oct, Nov and Dec will be 5.11%, 4.96% and 4.79%.

    Of course, the actual Oct result won’t be known until the end of Nov. So, for the Fed’s decision meeting in mid-Dec, they will only know the actual annual value up to Oct.

    Even if the Fed raises by 0.75% in Dec, the upper interest rate will only be 4.75%, i.e. less the above core PCE estimates for both Oct and Nov. (Nov release is at the end of Dec). They will need another rate rise in Jan to meet their objective.

    So, even on these optimistic projections, unless there’s a big change in public mood over the next few months, rates are bound to keep rising.

  42. Jpjpjp says:

    I know this is anecdotal but my tech employer who is owned privately has paused hiring for this year and guidance next year as well.

    Most of the “bigger” players are also enacting hiring freezes at the moment.

    The rates rising are having an effect on the cost of debt servicing for alot of companies which have short term debt. These costs are rising faster than revenues which will either erode profits or force businesses to get rid of the dead weight. Higher rates for longer should have the intended effect of raising the unemployment rate, it make just take a few more months.

    • Turtle says:

      It’s not just you. Others in tech are doing more than freezing hiring. A number of developers in my realm have lost their jobs already. A precaution against impending recession, they say.

  43. Pea Sea says:

    Would have been nice if someone in the room had brought up MBS sales again. They “weren’t thinking about it” last time, but that was then.

  44. Tone says:

    You would think in this environment, more people are moving away from stocks to the safety of short term interest paying vehicles…once interest rates peak…lock in long term.
    I, like most seniors or those close to retirement must be thinking this way…thus an exodus away from stocks

    • Cookdoggie says:

      Yeah for sure. In a perverse way I’m hoping for inflation to stay out of control long enough for rates to get to double digits so I can lock those in for a long time. There are lots of ways for an individual to avoid high inflation’s costs while reaping its benefits.

      1. Inflation linked investments, social security, iBonds, wage hikes
      2. Trade down from brands to private labels
      3. Eat healthy, exercise and abstain from the pharma and medical industries, which also means you die sooner without the artificial preservatives keeping you alive – the ones everyone says they don’t want but yet still take – so you don’t need your money to last as long and you can spend more now. I have seen very few people age 75+ who inspire me to want to be alive at that age
      4. Public transit, ride sharing, scooters, bicycles, walk (today I saw someone drive from a store on one side of the parking lot to a store about 150 feet away and park)
      5. Locate to low cost areas
      6. Shop for deals, stock up during sales; pay no interest

      It’s just choices, people. Make better ones.

  45. Michael Engel says:

    1) Common wisdom failed. Managers who borrowed at zero rates to
    buy bargains at markets bottom, who park their money in US treasuries,
    suffered from stocks and bonds markets collapse.
    2) Today rates are cheaper than tomorrow’s rates, and tomorrow’s rates
    will be half of next month. Investors knew it, preempted and TY collapsed.
    3) At zero rates the rate of change is very high. It double from 0.25% to 0.50%, double again to 1%, again to 2%, to 4% and double again to…8%.
    4) JP will do whatever he can to fight runaway inflation.
    Rates might pause at 4.50%, shortening the thrust. Bond investors know
    that Fed rate will not rise to 8%. JP don’t know exactly where to stop, but
    he will soon stop in order to have harmony with madam ECB, to observe.
    5) TY breached support. The down thrust might send it to it’s backbone : 125.25/95.59. DX futures weekly is rising, currently above Oct 24 high.
    In order to move higher there must be a close > Sept 26 high. Higher highs aren’t good enough.

  46. Michael Engel says:

    The Fed is fighting a runaway inflation, while targeting 2%. The Fed isn’t really fighting inflation in order to avoiding more pain, using it’s brute force like in Dec 1979. The real rates are minus (-)5%.
    At $31T US gov debt is down : $1.5T in real terms. After a decade of BS the negative compounding will normalized US gov debt and RE hot prices.
    Nov election jitters sent the markets down. When over, there will be a Xmas run. The monthly bars in Oct were green. If Nov will be green, NDX will have a Bar Miztva.

    • sunny129 says:

      Michael Engel

      What about the annual interest payment on that national debt of 31 Trillions and growing at 4% and then at 5%?

  47. Augusto says:

    I thought Powell was clear as a bell. He left no foothold for the Pivot crowd. Still, the Street will continue to pedal this pivot fantasy. They are all in on bonds and stocks, and these “have to”go up. Otherwise “they” lose money. Doesn’t matter about the real economy, inflation, productivity, etc…All that matters to them is whatever makes the value of stocks and bonds go up is good and whatever makes them go down is bad. Right now they think Powell is very bad. Maybe this time it will be the market that has to “Pivot”. Don’t fight the Fed.

  48. Michael Auten says:

    Just saw this in marketwatch: Apple now bigger than Alphabet, Amazon, Facebook! Now apple can’t pump much longer.

  49. Duke says:

    Pretty amazing that there is zero discussion about raising taxes here or anywhere else.

    It’s like taxes don’t even exist.
    They should not be able to print without doing the opposite to sop up the sloshing cash.

    Tax the money where it lands stupids. (Scalpel approach)

    Interest rates seem like trying to do economic surgery with a rubber spoon.

    • Cytotoxic says:

      Taxes are already very high. The USG’s revenue has been very steady at 20% GDP post-war despite top rates going all over the place. Further, even if higher taxes brought in money, the government would just spend it all. And that’s the real problem: spending. It has to be all spending cuts.

      • DUKE says:

        Tax it back and don’t spend it. Un-print it.

        • Cookdoggie says:

          Interesting. A money printing surtax. All proceeds pay off bonds on the Feds bal sheet and the dollars are removed from the money supply. An idea so simple and elegant that it will never happen.

  50. Yancey Ward says:

    Powell’s mistake was not doing this faster right from the start- we are still at 4% tops with inflation at 9%+. He needed to be raising ratest to at least 9% by the point in time. Stretching out the pulling off of the band-aid is the wrong approach.

    • Turtle says:

      Indeed, wish he had started this right after the alarm was sounded on inflation. Anybody with half a brain knew it was coming. Why’d he wait? Afraid of a recession, I guess. Then what, more stimulus? No way. I wonder if Powell ever kicks himself or if he really feels like he’s got this.

      • sunny129 says:

        Add to that why did he kept on buying 120B/m until April of this year!?

    • Swamp Creature says:

      Powell is doing the same thing the Golf Cart Manager, former Fed chief Miller, did under Jimmy Carter in the mid 70s. He’s following the inflation up with rate increases 4 to 6% behind the price increases. No one cares about the interest rates when you can borrow at one rate and pay back with currency that has lost 4 to 6% more purchasing power than the interest rates you just paid. Volcker had to come in and fix things. He did it by moving the Prime rate to 21%. Powell will have to do the same thing. I doubt he will. He will get cold feet like he did once before in 2018/2019. He talks tough but he will whimp out.

      • Not Sure says:

        Powell doesn’t have to follow the Volcker playbook. Cranking rates up even faster would mean that a deluge of businesses and even regular people will start defaulting as they lose the ability to roll over their debt or take on new debt. Lenders would find themselves in bad shape and credit would freeze. I’m coming around to think that the Fed is actually playing this the right way. Our economy has built itself upon a mountain of cheap debt over most of the last 20 years, and it’s going to take time for things to adjust. Good businesses need to adjust to maintain profits. Marginal businesses need time to ween themselves off of the cheap debt and restructure for a world of “normal” rates. Weak businesses need to die off gradually. People need time to adjust their lifestyles. Let’s not forget that Powell has trillions of anti-dollars that the Fed can access in the form of QT, which Volcker didn’t have. And let’s face it, this inflation was caused by flooding the economy with too many new dollars. High interest rates aren’t going to fix the fact that there’s too much money out there. But QT could potentially address that problem. Even then, it’s not clear that the Fed’s current tightening won’t cause a credit freeze forcing them to eventually loosen up aggressively at some point.

        Jacking the FFR to 21% in a short swoop would crush lenders and catastrophically freeze credit markets immediately. Average businesses wouldn’t have money for their next payroll and within one tax cycle, state and local budgets would disintegrate. The Fed would be FORCED to make their biggest pivot ever along with a deluge of political programs and handouts just to get the lights back on. I came into this with your mindset, but I’m reminding myself that we should be careful what we ask for.

        • Kracow says:

          Give terrible businesses that rely on cheap debt more time?
          No thanks those type of zombie companies need to fail ASAP.

          That’s the main issue with cheap debt you can spend above one’s means. Let’s keep increasing rates faster.

        • random guy 62 says:

          I’m with you.

          Drinking and debt are the same thing – they both borrow wellbeing from tomorrow and use it today.

          A metaphor in my head is that the economy has been on a drunken bender (cheap money) like a week at spring break. It can’t just switch to water and Uber to the airport, or it’ll hurl in the back seat and get a bad case of the cold sweats at takeoff. It need a bloody or two in the morning to stave off the shakes and a few beers to ease into real life again, then it’s back to work on Monday. That’s the “soft landing” they are aiming for.

        • Swamp Creature says:

          Not Sure

          It’s all going to collapse anyway. Going the slow route will only prolong the pain and make it worse.

        • VintageVNvet says:

          RG 8:
          With you on the drunk analogy, except I see it more like a long term perma-drunk, rather than a week long bender.
          The result for folks I have known, some of whom did not have a sober waking moment for decades, including when at work, has always been an early demise, albeit fairly quick and usually ”feeling no pain” up until the final weeks or so when the booze was cut off in hospital, etc.
          We can hope that the analogy for our world economy does not carry on that far, but, unfortunately, there is no way to know that in advance, and it certainly seems at this point in time that there are serious potentials for massive conflagration once again, with clearly unstable actors acquiring nukes and global capable delivery systems, etc.

      • Cytotoxic says:

        Powell was opposed by Trump in 2018 and faced no massive inflation. Powell now has Biden’s blessing and massive inflation. There is no reason to believe that he doesn’t hate what he did before or that he will wimp out. People banking on a Powell Put will bleed to white.

  51. Turtle says:

    6 month CDs will hit 5% before we know it. Any better place to stash cash? I wish iBonds had a higher limit.

    • WolfGoat says:

      CD Ladders it is! Made a bit of money this year shorting the Bond market, but that game is probably coming to a close by March.
      Just gotta wait for the pivot after the pause!

  52. Swamp Creature says:

    J Powell took a page out of the History Books on the Vietnam Conflict, where a General was quoted as saying:

    “We had to destroy the village in order to save it”

    J Powell said essentially the same thing in his speech yesterday:

    “We have to destroy the US economy in order to save it”

    • butters says:

      There’s no economy without money printing, so the economy would collapse with tightening was/is a given.

      Was there ever a good time to hike after 2009?

      • Cytotoxic says:

        Yes. The early-mid 2010s and after were fine times to hike. And no, the US economy won’t disappear without cheap money it will merely change-and for the better.

  53. BuySome says:

    The only thing missing from this theater of the absurd is a marquee reading “MANT!!”. Enjoy your picture show boys. No exchanges on melting bon bons. We clear after every showing.

  54. Depth Charge says:

    After such extraordinary money printing, it’s going to take even more extraordinary efforts to reign in inflation. Hence why, even after J. Pow’s speech, the indices are barely doing anything instead of crashing hard. There is simply way too much money sloshing around.

    This is also seen in the jobs market, as highlighted. Things are not slowing down, but accelerating. The volume of money is simply too big to overcome with a chintzy fed funds rate of less than 4%. Gonna take A LOT more to temper this raging inferno.

  55. DR DOOM says:

    Been a bad week for the pivot cult. Smackdown on both sides of the Atlantic. Time is ripe to start pumping crypto while divining the chicken entrails for a pivot narrative. I got to find out about the real story behind LNC ( Lincoln National ) loss of $10+ which took the stock down 30%. Is this an omen? Insurance/Retirement mutual platforms diving 30% could be bad juju.

    • Depth Charge says:

      I just noticed DoggyCONs are up over 100% in the past week or so. I mean, WHAAAAA?

      • Depth Charge says:

        I know, I know, if Elon Muskeg farts, you get a 10x.

      • Swamp Creature says:

        Elon Musk just fired 50% of his workforce.

        He fired them with an e-mail.

        Here’s how it read:

        “We thank you for your loyalty and tireless service to the company for the last decade”

        Fill in the rest of the e-mail…….

        Possible text:

        “Now clean out your desk and security will escort you out of the building by COB today”.

        • Wolf Richter says:

          Most of them are WFH. So “… and security will escort you out of your home”? That would be joke that only Musk pull off.

        • Swamp Creature says:

          So Musk’s text will read:

          To all Twitter workers who WFH and are part of the 50% reduction in workforce:

          “At the end of COB today day your logon user-id and account will no longer be active and will be deleted and purged from the system. All your personnel files will be mailed to you within 10 business days. Thank you again for your loyal and faithful service to the company, and we wish you a happy Holiday Season on the unemployment line.”

  56. FogCutter says:

    If you look back at every Fed tightening cycle (solely raising policy rate) dating back to 1957, in nearly every single instance (charted, it might actually be every single time), as of the last hike in the cycle, they had raised above the reported core and headline inflation readings at that time. This would be the first instance where that didn’t hold true if the pivot actually played out. If JayPow is serious about the lessons in history and committing to tamping out inflation, it’s unbelievably easy to chart what he’s saying. At a 3.75-4% handle on the FFR and his accurate statement that we’re still not seeing a meaningful decline in inflation over the last 12 months, there’s still pain to be delivered

  57. sunny129 says:

    Without the constant spin of ‘pause and or pivot’ the Wall St cannot encourage dip buyers to jump into the mkt.

    I still sense there is strong hopium, especially the newbies (45y or below) think that indexes will recapture the previous peak once the pause is put in place some time next year. Front running will only stop once S&P goes down another 30%, from here.

  58. Swamp Creature says:

    J Powell is starting to sound a little like Paul Volcker. He said we have to get interest rates above the inflation rate. WHAT’S WRONG WITH THAT!!

  59. Swamp Creature says:

    Haven’t seen any new charts depicting the spread between the High Yield (Junk Bonds BB and below) vs BBB and investment grade bonds. Is the spread widening significantly? If so, it’s a good indication we are heading into a credit crunch and severe recession. If not, it’s a sign that things have a way to go before things collapse, and the Fed will be increasing interest rates at a good clip for the foreseeable future.

    • Wolf Richter says:

      The BB yield has recently dipped to 7.2% from 7.7%.

      The spread to Treasuries has narrowed of the past month to 3 percentage points. Roughly in the same range all year. By comparison, at the peak of the financial crisis, it was 13.5 percentage points. So the spread is still fairly narrow. Financial conditions are still fairly loose.

  60. Finster says:

    “But then during the press conference, Powell pivoted further into the hawkish direction, and repeatedly, and purposefully, and all heck broke loose in the markets, and he kept hammering on it, and concluded with it, to where there would be no misunderstanding and no misinterpretation.”

    Looked for all the world to me like the markets, desperate to seize upon the slightest opening, misconstrued the statement as dovish. When Powell was told they rallied in response, he corrected that misunderstanding, crushing the rally. Jackson Hole redux.

    The Fed’s messaging has been consistent for months. Wall Street and the Wall Street media have not, grasping at every straw in an attempt to justify higher stock prices. But the Fed doesn’t want higher stock prices, it wants “tighter financial conditions”. Powell’s presser performance was perhaps the most dramatic evidence of that yet.

  61. david pare says:

    Peachy- “Also, what happens to oil if and when China stops locking the whole country down?”

    Ok, awesome question. I think we might have seen the answer to that on Friday – a seriously strong rally in both crude, and copper, which started in Asia trading hours.

    Not saying it happens, but the rumors did appear to link up with the timing of Friday’s Big Crude Rally. Seriously good question. And here I thought Friday’s move was just the anticipation of Nov 8th.

    • Peachy says:

      Yeah David, it’s also a really obvious question. Do people expect China to be lockdown ad infinitum? No? Then what happens to oil when China comes out of lockdown?
      All they have to do is make some semi-plausible excuse why it makes sense for them to come out of lockdown so they can save face.

  62. DanS86 says:

    “Interest it pays the banks on reserves, to 3.9%.” Great way to kill the economy. Or maybe contain hyperinflation as remaining middle class is eviscerated???

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