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The Data Gains Ground on Reality Several weeks back, we lamented the time it took for monetary policy actions to produce a result on a couple of key data points that define success in the Fed’s battle against inflation. Price stability, as measured by the change in the Consumer Price Index (“CPI”) and employment data (new jobs/unemployment) are bellwether indicators that drive policy changes by the Fed. The effects of interest rate hikes and the balance sheet runoff that began…

Coping With Data Lag That’s the challenge for investors as the Fed Board has been on what seems to be a public speaking tour these past couple of weeks. To a person, they have all trumpeted their commitment to beating inflation, regardless of the consequences for the economy. Predictably, traders and investors were not enthused going into the October 13 release of inflation data (“CPI”). The headline number was announced, falling 10bp from 8.3% to 8.2%. We thought that was…

The Fed: Any Landing Will Do The investment community has spent considerable time pondering whether the Fed will be able to craft a soft landing for the economy as it battles inflation. On Wednesday Jerome Powell erased any doubt as to whether avoiding a hard landing was a priority for the FOMC as many, ourselves included, had thought. It’s not. The hike of the Fed Funds rate by 75bp and the chairman’s statement that followed made it evident that the…

The Market Moves on From Inflation Anxiety to Recession Fear Curbing demand without triggering a recession defines a soft landing that the Fed is attempting to craft for the economy. They’ve been successful in only one of 11 attempts in the modern era (1994), so the odds are long. The FOMC has employed all of its tools since March in seeking to strike a balance between supply and demand and restore price stability. Foremost among those tools is raising the…

Translation of Fed-Speak Ends the Summer Rally Economic data of the past couple of months broadly points to the peak of inflation having been reached. Price weakness in Commodities and Housing, declining CPI/PPI, and an improving supply chain have begun to ease inflationary pressures. While not yet a “Mission Accomplished” moment for the Fed, it’s a healthy beginning to restoring price stability. The market greeted news of Peak Inflation with a media-labeled “summer rally”. We viewed it as a rational…

  Has Trend Change Finally Arrived? It appears so. This week’s inflation data confirmed what the Fed and a number of strategists had anticipated. Lower prices for commodities, peak housing, and cheaper gas at the pump would eventually be reflected in the Headline CPI number. July’s number came in at 8.5%, down from June’s 9.1%. This didn’t come as a surprise to those analysts not on CNBC since Core CPI (Headline less food /energy) and wholesale (PPI) prices weakened for…

Interpreting the Bond Market’s Message In our Update of two weeks ago, we opined that housing prices had peaked, raising the prospect for headline inflation to follow. This was confirmed by recent housing data and commencement of layoffs as home sales slowed and builders hit the pause button. That leaves Energy as the remaining key to changing the current inflation narrative. Gas prices would have to peak before seeing trend change in headline inflation. This week we’re seeing oil trading…

Mission Accomplished For the Fed: A Slowing Economy A component of last Friday’s inflation report came in higher than we had expected. The CPI headline number increased to its highest level in 40 years. However, that was only part of the story. The core inflation rate, excluding food and energy prices, actually posted a downtick for the third consecutive month. That was matched this week by a third straight downtick in wholesale price growth as expressed by the core PPI…

Bear Market? Yes. Recession? Not So Fast. Last Friday, we declared a bear market for the S&P 500. We based that on its intra-day low of 3810, marking an almost 21% decline from its high. From there it pushed higher to close the day at 3901, just shy of what has been deemed to be an “official” bear market. In the past we’ve adhered to conventional thinking that requires a close beyond the 20% threshold to earn that label. Given…