Fed Pivot, Reversal & Re-Reversal? It’s All in the Game!

By Victor Sperandeo with the Curmudgeon

A Columbo TV Episode to Help Understand the Fed’s Mentality:

One of the best TV detective series of all time was “Columbo,” starring Peter Falk (in the photo below). 

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It’s All in the Game,” was an October 31, 1993 episode (#62) with Faye Dunaway playing Lauren Staton.  Columbo flirts with and emotionally appeals to Lauren, who murdered a playboy/gigolo because he threatened her daughter. Columbo acts like he cares a lot for Lauren, in order to get her to confess, which she does. It was the only way for him to solve the crime!

Towards the end of the episode, Columbo talks to his bartender friend who asks him several questions.  The dialog was as follows:

Implication:  Don’t Trust the Fed!

There’s a strong warning here of believing Fed talk. A critical lesson from this show is to be highly skeptical of what the Fed says.

The Fed’s chicanery was clearly demonstrated this past Wednesday, December 13th, when Fed Chairman Jerome Powell said the Fed would cut rates three times next year.  Powell avoided laying out specific criteria for the timing of those rate cuts. That was a complete reversal of what Powell said on December 1st (more below).

Specifically, in its December 13th Summary of Economic Projections (SEP), the Fed forecast a median Fed Funds rate of 4.6% vs. the current 5.25-to-5.5% target rate.  The shift in the outlook was stark, with 17 of 19 Fed policymakers seeing rates lower by the end of 2024, and none seeing them higher.  Chart from the SEP:

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"The Fed is done!" exclaimed Diane Swonk, chief economist at KPMG US, and if economic data continues evolving as it has, with inflation cooling alongside an economy that seems poised to slow but not crash, then "the Fed will be cutting sooner" rather than later in the year, she said.

Financial markets took this as a huge “Fed Pivot” and rallied strongly across the board. “Happy days are here again” was the message from the markets. Please see Outlook for the Markets below.


Fed Reversal and Re-Reversal?

The Fed’s December 13th “pivot” was a complete reversal of what Powell said December 1st as reported in a CNBC article titled, “Fed Chair Powell calls talk of cutting rates ‘premature’ and says more hikes could happen.”

“It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease,” Powell said in prepared remarks for an audience at Spelman College in Atlanta. “We are prepared to tighten policy further if it becomes appropriate to do so.”

Although the Fed Chairman said that the Fed's latest policymaker projections don't necessarily mean the economy will fall into a recession, he did suggest the risk is worth it, and that the Fed has no plans to cut rates to cushion the blow. "Reducing inflation is likely to require a sustained period of below-trend growth and some softening of labor conditions," Powell said.


Well, there may have been a Fed re-reversal on Friday morning December 15th as per this CNBC article, “Fed’s John Williams says the central bank isn’t ‘really talking about rate cuts right now.”  N.Y. Fed President John Williams said that rate cuts are not a topic of discussion at the moment for the central bank and it’s premature to talk about it.

“We aren’t really talking about rate cuts right now,” he said on CNBC’s “Squawk Box.” “We’re very focused on the question in front of us, which as chair Powell said… is, have we gotten monetary policy to sufficiently restrictive stance in order to ensure the inflation comes back down to 2%?  That’s the question in front of us.”

Traders are betting that the U.S. central bank will cut rates more than three times, according to Fed Funds futures. Futures markets also indicate that the Fed could start cutting rates as soon as March.  However, it appears that Williams is reining in some of that enthusiasm a bit.   “I just think it’s just premature to be even thinking about that,” Williams said, when asked about futures pricing for a rate cut in March.

Victor’s Outlook for the Markets:

In Victor’s opinion, Williams’ CNBC comments on Friday mean little. The equity markets can now be expected to be bought on dips. Even bonds are now a buy on weakness.

David Hunter coined the term “melt up” and is calling for 6,000 to 7,000 on the S&P in a short time.  Here’s his latest YouTube interview. 

What looked like totally impossible at the beginning of this year, now looks like a very real possibility.

Bank of America Global Research on the Markets:

Jared Woodard warns that Fed rate cuts could contribute to structurally higher inflation. In 2023, locked-in low mortgage rates kept housing strong in spite of Fed hikes, but next year strong wage growth, government spending, and corporate dry powder could keep the economy stronger than expected, potentially reigniting prices longer term. Jared would treat a year of "friendly deflation" as a chance to rebalance into real asset hedges such as gold, oil, uranium, and miners.

 In equities, a weaker dollar and stable Asian growth should boost EM small caps (EWX), South Korea (EWY) and Japan (DXJ); national security needs should boost defense (PPA). In credit, opt for yield via senior loans (SRLN), "fallen angels" (FALN), and EM debt (VWOB).

Victor’s Conclusions:

Fed Chairman Jerome Powell and his cohorts pretend, lie, deceive, defraud, mislead, and beguile the public to achieve their own ends. Many of those are mysterious with a likely undisclosed hidden agenda.

The reality is that the Fed couldn’t care less about what happens to main street. That despite Powell’s closing remarks at the December 13th FOMC press conference: 

“To conclude, we understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission.” 

-->Do you actually believe that? One can only conclude that Fed officials are like the Keystone Cops or have the mentality of a gang of teenagers?

What do you make of the Fed pivot/ turning on a dime?  We conclude that “IT’S ALL IN THE GAME!

End Quote:

“The fact that so many successful politicians are such shameless liars is not only a reflection on them, it is also a reflection on us. When the people want the impossible, only liars can satisfy.”

Thomas Sowell is an American economist, social philosopher, and political commentator. He is a senior fellow at the Hoover Institution at Stanford University, where he writes on economics, history, social policy, ethnicity, and the history of ideas.

Curmudgeon Request:

In the past 12+ years, Victor and I have written about markets, the Fed, global and U.S. economy and geopolitics.  By far, the latter has attracted the most readers. Please email me at ajwdct@gmail.com to let us know what you’d like us to focus on in future posts.  Thanks!


Be well, keep active, and try to be objective in this age of disinformation and propaganda campaigns.  Till next time….


The Curmudgeon

Follow the Curmudgeon on Twitter @ajwdct247

Curmudgeon is a retired investment professional.  He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996.  He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.

Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies, and government policies.  Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.

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