Chairman Pow Hikes 50 Basis Points; Mr. Market Surprised

It’s not like he didn’t tell us he was still hiking. [The Rude Awakening] December 15, 2022 [WEBSITE]( | [UNSUBSCRIBE]( Chairman Pow Hikes 50 Basis Points; Mr. Market Surprised - Powell hikes fifty basis points, as was suggested beforehand. - But Mr. Market appeared confused and sold off after the announcement. - Just listen to Chairman Pow from now on. There’s more hiking to come. [Over 62 And Collect Social Security? Take Action Immediately!](LINK1?ESP_MAIL_ID=5748468&ESP_ORG=400&ESP_EXP_ID=7762348&ESP_CNTC_ID=MDAwMDgzODgwNTcz&ESP_A=72570) [If you’re over the age of 62 and currently collect Social Security, you need to prepare now](. Because Biden has given our country the worst inflation in decades – and many warn things will only get worse from here. Worse yet, the Social Security check you receive now may not keep pace with inflation… [Which is why, if you don’t act now, you could fall behind in the months ahead](. Is your retirement at immediate risk? [Click here now to get the simple, step-by-step actions to survive inflation](. [Click Here To Learn More]( [Sean Ring] SEAN RING Happy Thursday! It remains icy here in Asti as I write from the wee hours of the morning. There are times, like today, when I can’t believe the market can’t believe what the Fed has done. I honestly don’t know what Mr. Market was looking for. Jay Powell told us repeatedly that he’d keep hiking rates until the inflation monster was slayed. He’s never veered from the path. The only thing that’s different this time is that he hiked 50 basis points instead of 75. And yet, the market seems to have panicked. As I write this, I’ve got a face like a beaten favorite. You know, that look a sporting star has on his face when he can’t believe he lost the game. Sheer and utter confusion. I mean, why does the market try to talk itself into different narratives? Powell told us he was going to keep hiking. The signaling from the Fed indicated that a 50 bp hike was practically guaranteed. There was nary any talk of a 25 bp hike. And doing nothing was off the table. I will try to make something of yesterday’s market action in this Rude. The Hiking Will Continue Until the Morale Worsens! Chairman Pow doesn’t care about your retirement account. He doesn’t care about your ability to feed yourself. He doesn’t care about sending your kids to college. And he certainly doesn’t care if you’re employed by this time next year. Jay Powell cares about one thing and one thing only: his legacy. Here’s some of the FOMC statement from yesterday: The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 4-1/4 to 4-1/2 percent. The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that were issued in May. The Committee is strongly committed to returning inflation to its 2 percent objective. How many times in one statement does Chairman Pow have to make himself clear? He wants inflation back to 2%, from the current over 7%, and he’s willing to sacrifice your livelihood in order to do it! And yet, rate expectations look different from what the Fed is telling us: [SJN] Credit: [@M_McDonough]( Right now, I’m more inclined to think rates are just going to keep going up. [The Metaverse Story You’re NOT Hearing…]( Everywhere you turn, people are raving about the Metaverse. Facebook’s now called Meta. Microsoft’s CEO says, “The Metaverse is here.” Apple’s all in too. But there’s a critical piece of the Metaverse story you’re NOT hearing about… [Click here now for the full details](. [Click Here To Learn More]( Surprise at 2 pm? With all that said, Mr. Market seemed to have a hissy fit. It’s crazy, I think. Have a look at yesterday’s price action around the announcement: [SJN] Why? Why? [Macro Alf]( came up with three reasons why things went this way: - The Fed Believes the Labor Market Is Still Red Hot. - The Bond Market Is Calling the Bluff. - Changing The 2% Inflation Mandate? Forget About It. First, the Fed is going full speed ahead because the labor market is too strong for Jay Powell’s taste. This caught the market off-guard. The bond market flat out doesn’t believe the Fed. The bond market thinks the Fed will hike less and cut sooner than Powell says. I think they’re wrong. And finally, Jay Powell won’t abandon the 2% inflation target. (Although he stupidly - stupidly! - said that [abandoning the 2% target may be a project for the future]( What did all this do to the SPX? Well, the black line below is this year’s downtrend line. And the red line is the 200-day moving average. [SJN] It looks like Jay Powell played wackadoo with the market yesterday. In fact, just based on this chart, I think this may be a great place to get short. On our editorial call yesterday, our dashing Playbook writer Jonathan Rodriguez said that if we start heading down, the pre-Covid high of 3,390 is in play. Below there… lights out. [SJN] As a quick reminder, the Rude set a target of 3,215 earlier this year. Though it’s taking its sweet time to get there! [SJN] Part of the issue is how the CPI print was interpreted. Let me explain. How the CPI Print Should’ve Been Interpreted. First, let’s get some definitions out of the way, with a pardon from my Austrian economics friends. I’ll define them as The Street defines them, not as Mises does. - Inflation: when the average price level increases. - Disinflation: when the average price level increases but at a decreasing rate. - Deflation: when the average price level decreases. The market is an expert in confusing the last two. When the CPI print came out at 7.1% year-on-year earlier this week, inflation didn’t “calm down.” Prices didn’t decrease. Prices are still going up, just not as fast as last month. And you must expect that because the mathematics of percentages dictate, you’re not going to compound at an increasing rate forever. This means that inflation is still hot, but the market can’t do the math… or doesn’t want to. If they had looked at the inflation number dispassionately, the market would’ve realized Powell was going to hike 50 bps… and will keep hiking into the foreseeable future. Wrap Up Mr. Market is the most frustrating entity on earth. He’ll believe any stupid story he can tell himself, ignoring the obvious signs around him. But trust in this: Chairman Pow is going to fight inflation to your last 401(k) dollar. He only cares about his legacy, not your future. If you understand that, the next market moves clearly appear, Santa Claus Rally or not. Until tomorrow. All the best, [Sean Ring] Sean Ring Editor, Rude Awakening [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2022 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. To end your Rude Awakening e-mail subscription and associated external offers sent from Rude Awakening, feel free to [click here.]( Please note: the mailbox associated with this email address is not monitored, so do not reply to this message. We welcome comments or suggestions at feedback@rudeawakening.info. This address is for feedback only. For questions about your account or to speak with customer service, [contact us here]( or call (844)-731-0984. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. 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