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The Federal Reserve prepares another rate hike, retail and professional investors clash on Fed trades and Covid spreads rapidly in China. Fe [View in browser]( [Bloomberg]( The Federal Reserve prepares another rate hike, retail and professional investors clash on Fed trades and Covid spreads rapidly in China. Fed focus Federal Reserve Chair Jerome Powell and his colleagues look [set to increase benchmark rates by 50 basis points](to a 4.25% to 4.5% target range on Wednesday. They’re also likely to signal another 50 basis points of tightening next year, according to economists [surveyed]( by Bloomberg, and an expectation that once they reach that peak, they’ll stay on hold through all of 2023. “The Fed has been pushing the message that the policy rate is likely to remain at its peak rate for a while,” said Conrad DeQuadros, senior economic adviser at Brean Capital LLC. “That is the part of the message that the market has consistently not gotten. The estimates of the degree to which inflation will come down are too optimistic.” Retail vs pros As for trades ahead of the Fed meeting, [retail and professional investors are divided.]( The top responses in the latest MLIV Pulse survey found that 37% of do-it-yourself investors believed owning US stocks is the best trade ahead of the rate decision, while 40% of institutional investors said it’s better to short them. “Institutional investors are likely talking their book more than they’re talking their intellectual honesty,” Art Hogan, chief market strategist at B. Riley Wealth, said by phone. “If you look at net positioning, there’s a lot of professionals that are still offsides.” Covid in China Covid is [rapidly spreading]( through Chinese households and offices after the country’s pandemic rules were unexpectedly unwound last week. Despite pleas from state media and health experts for people to self medicate and recover at home, many citizens are flocking to hospitals. Some facilities are struggling to find enough staff and others are suspending non-Covid treatments as health-care workers say they’re scrambling to meet demand for care following China’s [Covid Zero]( reversal. Scenes of disruption are easily visible in Beijing, where anecdotal evidence suggests the caseload is many times the government’s tally of 1,133 for Sunday. Upbeat markets S&P 500 and Nasdaq 100 futures both rose about 0.2% as of 5:09 a.m. in New York. The dollar traded near its lowest levels of the day, resulting in mixed trading for Group-of-10 currencies. Treasuries advanced, pushing yields lower across the curve. Oil and gold fell, and Bitcoin headed for a second straight day of declines. To catch up on the trading day in the UK and Europe, [check out today’s edition of City Latest](. Coming up… At 11:30 a.m., the US will sell $45 billion of six-month bills and $40 billion of three-year notes, to be followed by an auction of $32 billion of 10-year Treasuries at 1 p.m. At 2 p.m., we’ll also get the monthly budget statement for November. What we’ve been reading Here’s what caught our eye over the weekend: - [Elon Musk steps up attacks]( on Twitter’s former safety head - US scientists make a breakthrough in [nuclear fusion energy]( - [Ex-Nissan CEO Ghosn’s escape](cost his extraction crew their freedom - Even royal family members[struggle to buy Rolexes in Dubai]( - [Asking prices for UK houses]( are falling at the sharpest pace in four years - [Sex inspectors](won’t ruin Bali vacations, the local government says - Artists hit back against[new, free AI app that creates avatars]( And finally, here’s what Joe’s interested in this morning I don't normally use this space as an advice column. But I got an interesting direct message on Twitter the other day, and so I figured why not. Here's the question: I definitely gotta feel for anyone in this position. People love discovering money supply charts like this one, and then talking about all the "money printing" going on. And once they're down that rabbit hole, they might be lost for good. Here's a chart of M2 money supply growth on a year-over-year % basis: So on the one hand, you could look at the big spike in late 2020/2021 and say "Aha, that's why we have all the inflation". But then on the other hand, it's been plunging sharply for awhile. So if you wanted to take this seriously, the money supply data should turn you into a deflationista now. Though the truth of the matter is that there's just not a great track record for this being a meaningful indicator of anything. Money supply growth also spiked in early 2009, and that did not portend anything inflationary. In fact that marked the beginning of a decade of the Fed undershooting on inflation. Speaking of inflation, the other day I was [playing around with ChatGPT](, the AI chatbot that's captivated everyone these last few weeks. Anyway. I asked it to write the script to a [pretend Odd Lots episode about Modern Monetary Theory](. Anyway, the AI came up with a great line about how many people view inflation as a function of the amount of *money* in the economy, whereas the MMT view says that inflation is more driven by the amount of *spending* in the economy, which is a different thing. In other words, a lot of cash balances in bank accounts just sitting there doesn't mean much. You can keep piling on the cash, but if there's no impulse to spend, prices aren't going to rise. On the other hand, you could imagine a very spendy world, even in a world where cash balances or other money measures aren't that high. Anyway, this seems like a more useful frame for understanding the state of the economy right now. We've seen massive disruptions to everything over the last three years, but total demand has been quite robust throughout this whole period. So if you have a relative who can't stop sending you money supply charts, just point to past spikes that didn't portend anything significant to show the unreliability of these measures. And talk about other more fruitful avenues that focus more on actual spending/demand that will give you a better read on the state of the economy. Follow Bloomberg's Joe Weisenthal on Twitter [@TheStalwartÂ]( Follow Us Like getting this newsletter? [Subscribe to Bloomberg.com]( for unlimited access to trusted, data-driven journalism and subscriber-only insights. Before it’s here, it’s on the Bloomberg Terminal. Find out more about how the Terminal delivers information and analysis that financial professionals can’t find anywhere else. [Learn more](. 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