2024 Fed Odyssey - Post Mortem

Here’s my emergency summary of the Fed meeting:

The Fed expects FASTER GROWTH, LOWER UNEMPLOYMENT, HIGHER CORE INFLATION but … expects the same median dots!

That’s the Central Bank definition of having your cake and eating it too!

I was expecting a balanced-to-dovish meeting, but this was a step too far.

Powell delivered better one-liners than Jon Stewart. When he retires as Fed Chairman he should take over at the Daily Show.

On Inflation: "We don't really know if this is a bump on the road or something more. We'll to have to find out." [when, Jay, when?!]

On the Economy: “We think financial conditions are weighing on the Economy” [I’m lost for words]

On the Economy and Inflation: “The inflation data came in a bit higher as a separate matter and I think that caused people to write up their inflation expectations” [I don’t know man, when inflation goes up, usually economists write up their inflation expectations, but you do you!]

And finally the coup de grace on Inflation:

“We’ll get to 2% inflation over time .. we will”

OVER TIME??? Like … by 2050???!!

Legend.

I love it. Equities love it. Commodities love it.

Even Bonds love it… for now, at least! How??

Shouldn’t Inflation Expectations rise?

In my Fed preview, I said that if the Fed was dovish, there was a risk that yields will spike but that the Fed would be well aware of this, so they would use the QT tapering discussion to dampen the impact. I said:

“The Fed and the Tamagotchi are very well aware of the risk that Inflation Expectations will rise and yields may spike on a “dovish” Fed delivery.

That’s why the “QT tapering” discussion will probably be thrown in the mix, in order to cap any violent moves in yields.”

The US10yr initially spiked at 4.32% on the press release, as you would expect when a Central Bank yolos into inflationary growth.

But then the discussion on the balance sheet came in and the US 10yr sold off to 4.26%. Mission accomplished!

Here’s what Powell said on the balance sheet: “The general sense of the committee is that it’ll be appropriate to slow the pace of runoff fairly soon, consistent with the plans we previously issued.”

This means that the Fed could reduce the supply of Treasuries by a few hundred billion, and make the Treasury’s job easier to sell bonds.

As we keep saying, this is a Re-Election Cycle. They will literally pull a rabbit out of a hat if they have to. In this case, they pulled a dove out of a hat (what a terrible dad joke, sorry! I can’t be as funny as Powell! )

Disclaimer:

This isn’t financial advice. This is the equivalent of reading MAD magazine for finance but worse: This is the trading blog of a shrub.

Don’t be Stupid. Seriously. How many times do I have to repeat this ….