Fed Pivot, Reversal & Re-Reversal? It’s All in
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
“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:
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
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:
"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,
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
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.”
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.
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).
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!”
“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
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.
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 email@example.com to let us know what you’d
like us to focus on in future posts.
Be well, keep active, and try to be objective in this age of
disinformation and propaganda campaigns.
Till next time….
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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