Sponsored Content - January’s first several trading days have unfolded exhibiting much the same disconnect between markets and the Federal Reserve that we closed out 2022 with, says Chris Temple, editor and publisher, National Investor Publishing.
To a person, Fed heads have told us that:
1. They will raise the federal funds rate to, likely, a bit above 5%; another full percentage point or so higher still from its year-end level.
2. The Fed will keep the rate at this peak, once it pauses, for possibly a year or longer.
3. There are no plans until at least well into 2024 to begin to cut interest rates.
4. The Fed will continue until further notice to reduce its bloated balance sheet by $95 billion/month.
5. All the above—and anything and everything related—is because the central bank’s goal in its quest to reduce the inflation IT was the primary cause of is to “reduce demand.”
6. And what that (No. 5 above) means is that the Fed is NOT going to be dissuaded all that much by recession, a notable increase in unemployment, etc. Indeed, especially on the latter, Fed Chairman “Fire Marshall Jay” Powell has essentially told us the Fed wants to see this.
We have to take all these predictions with a grain of salt, of course. The Fed has for years made bold prognostications—often sticking for a long time to a certain narrative until forced to abruptly turn tail—only to later be proven spectacularly wrong. Such was the case, we all now know, with its insistence that the producer/consumer price inflation that started manifesting itself all the way back in late 2021 would be “transitory.” That aged terribly.
Even if you want to believe that something is going to cause an earlier “pivot” for the Fed, simply ask yourself what would? Especially with the wild extremes in Fed policy and its resulting creation of all kinds of silliness in the markets, the odds of the Fed pulling off a soft landing are about the same as those of my children’s beloved Green Bay Packers winning the Super Bowl this year. Zilch.
The Fed will pause or pivot sooner than they presently advertise if:
1. Something “breaks” 2008-style in the markets and everything starts to crater much more suddenly, or
2. The economic/earnings situations in the US accelerate their respective, thus far modest, downturns.
Either way—no, any way—economic activity and corporate earnings are going to get hit harder as the year progresses. Whether we have a recession or not is a matter of when, not if. It need not necessarily be debilitating. Frankly, I am looking for something less dramatic than some of the more apocalyptic forecasts; “a slow, dull ache” of stagflation for perhaps years to come.
As I said as the New Year was ready to unfold in conversation with a colleague on his podcast, the Fed clearly intends to squeeze the economy and assets further. The secular bear market still underway will take on more earnestness, though there will still be LOTS of opportunities, as I will continue to discuss and bring you.
For Chris’ complete commentary on his outlook for 2023, CLICK HERE.
If you are not already a Member, visit Chris Temple at NationalInvestor.com.
