I'm sure you all saw it. The PPI Thursday came in TWICE as hot as they expected. They thought we'd see prices rise 0.3, but no, it was 0.6. Even taking out food and energy it was hotter than expected.
That coincides with the latest CPI reading that was also hotter than expected. Wrapped up together we have two months of data showing that inflation has stopped "coming down" and is perking back up.
Well, what's the grand poo-bah Powell going to say about that? This coming week is a Two day FOMC meeting with Powell doing a press conference at the end of the second day. Well, in his speech to Congress a couple weeks back, he was very dovish, and said several things that pointed to them being ready to cut rates.
Many hoped he was going to start with the March meeting next week. But how can he? We've got back to back higher readings. Which means, I think...he's going to have to say something like "this is why we've been patient and have held things higher for longer, because we didn't want to get headfaked, cut rates too early and then have to hike them again."
Bob Rinear | March 16, 2024
I'm sure you all saw it. The PPI Thursday came in TWICE as hot as they expected. They thought we'd see prices rise 0.3, but no, it was 0.6. Even taking out food and energy it was hotter than expected.
That coincides with the latest CPI reading that was also hotter than expected. Wrapped up together we have two months of data showing that inflation has stopped "coming down" and is perking back up.
Well, what's the grand poo-bah Powell going to say about that? This coming week is a Two day FOMC meeting with Powell doing a press conference at the end of the second day. Well, in his speech to Congress a couple weeks back, he was very dovish, and said several things that pointed to them being ready to cut rates.
Many hoped he was going to start with the March meeting next week. But how can he? We've got back to back higher readings. Which means, I think...he's going to have to say something like "this is why we've been patient and have held things higher for longer, because we didn't want to get headfaked, cut rates too early and then have to hike them again."
If he says something like that, the market is not going to like it one bit. Remember, this is a market that bet on SIX cuts this year, then realized that wasn't going to happen, and settled on three. But here's the rub. There's only 3 more FOMC meetings that also have the press conference left after next weeks.
So let's say he has to talk a bit more hawkish next week. Then as the data continues to come in, it is evident that inflation is indeed continuing to creep up, or "hold" where it's at. That would mean that at the June meeting, he'd have to go ahead and cut, with the explanation that it was just a blip higher and it's long term progression is still lower.
But think about this for a minute. IF he is hawkish next week, he'd have to reverse his stance from Hawkish next week, all the way to a cut. That's not how it works usually. What would be normal would be to be hawkish next week, then in June if things have cooled a bit, talk about how it looks like inflation is back to fading....but no cut. Then in September if he can still justify it, maybe cut then.
But that brings up two problems. One is that if he cuts in September, the only meeting of importance is December, meaning we'd only get two cuts this year. Is the market going to be okay with only two cuts when they firstly wanted six?
There's more however. Don't forget, one of the most important Presidential elections of all time is in November. Will the feds want to do the first rate cut in YEARS, a month before the election?? You know there will be screams galore about giving Biden a political push.
Yes the poor man's got himself in a "situation" for sure.
So, what's the best way out? Well, here's how it could go. He does talk a bit more hawkish next week, but leans towards these latest reports as being outliers, one off's, and they're still seeing signs of lowering inflation. Of course he doesn't cut. But then June rolls around the Mr. Market has a knife to his throat... so he does his first cut. But then says he's going to need a lot of time to digest if that cut has helped things or hurt things. So, there will be NO move in September. Then maybe they do the one in December.
From where I sit, this market is getting 2, not 3 this year. Are they going to like that, considering all they debt these companies need to roll over? Probably not. I think Thursday's action with the market rolling over from a green open, to pretty red, was the first real indication that they now realize their hopes for 3 in a row are dwindling.
So that's my take. He might just "force" a cut in June to make everyone happy, pass in September because he "needs more time for data" ( so he doesn't look like he's tossing Biden a bone) and then who knows, maybe another in December.
Either way, it's going to be very very interesting to hear him babble on Wednesday. I almost can't wait, it should be epic.