Good Monday AM,
A quick recap from last week as I was absent.
According to the Fed, rates are now “right in the range” of “neutral” (i.e. an interest rate that neither hinders nor fuels economic growth), while Chairman Power expressed further doubt that the U.S. was in a recession – given the low unemployment rate and solid job gains (please see the pretty picture below that tells a different story, Q2 was the second quarter in a row of negative growth..).
Per Chair Powell, “These rate hikes have been large and they have come quickly, and it’s likely that their full effect has not been felt by the economy. So there’s probably some additional significant tightening in the pipeline… As the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases while we assess how are our accumulative policy adjustments are affecting the economy and inflation.
“We do see there are two-sided risks: There would be the risk of doing too much – imposing more of a downturn on the economy than was necessary, but the risk of doing too little and leaving the economy with this entrenched inflation – it only raises the costs of dealing with it later to the extent that people start to see it as part of their economic lives on a sustained basis. I don’t think that’s happened yet, but when that starts to happen, it just gets that much harder and the pain will be that much greater… Restoring price stability is just something we have got to do. There isn’t an option to fail. “While another unusually large increase could be appropriate at our next meeting, that is a decision that will depend on the data we get between now and then,” he declared. “It’s time to just go to a meeting-by-meeting basis and to not provide the kind of clear guidance that we had provided.”
Keep in mind that the Fed is committed to transparency.
It intentionally telegraphs its policies so not to create additional volatility in the markets. That the Fed cannot offer future expectations is tantamount to them saying, we don’t know what is happening or going to happen.. Needless to say, markets pivoted on that commentary to now expect three fewer rate hikes (and now rate cuts).
And to add a few more pictures to the economic landscape.. Consumer confidence is dropping like a rock as is real personal income.
So what is the good news today?
Well, inflation is coming down quickly so real income will go up.. Interest rates will come down and there will be less strain on the system. The velocity of home sales will increase on lower rates and the economy will start humming again shortly. A recession is a necessary and normal stage of economic activity and will lead to the next leg up of growth. I anticipate this recession we are in to be short and we are likely already halfway through.
Please remain safe and stay healthy, make today great.