The Pivot Cometh - The SUM Report 2-3 | QPOL Issue #35
Pontificating on the latest FOMC results.
Not gonna lie, I’m a little bummed Powell didn’t go 50 bips. It surely would’ve bankrupted Davos and done much more damage to the leveraged loan/offshore dollar markets and further assert America’s monetary independence.
But would it? Its time to ask ourselves and pontificate why the Fed only went 25 bips. I still believe the fight against Davos is still valid, but as always, nuance is key and probably the word of the decade. The amount Powell has raised is unprecedented and anybody calling this a “pivot” is either delusional or disingenuous. Let’s look at this at a few angles.
General Health of the Economy
I believe this is Powell giving the markets a break. The general health of the economy is above the market’s expectations. The S&P 500 posted its best week since January of 2019, and Q4 GDP of 2022 was +2.9%. Had Powell raised 50, markets would have tanked.
The Balance Sheet
Danielle DiMartino Booth has mentioned the Fed wouldn’t go 50 bips because they’re more focused on easing the load on their balance sheet. That’s odd because the Fed apparently sold roughly $40 billion worth of MBS’s according to the latest H.4.1. release (section 5).
Inflation
In the FOMC transcripts, Powell noted for the first time that “inflation has eased somewhat but remains elevated.” This is noteworthy because it’s the first time the Fed has mentioned dis-inflationary outcomes and further demonstrates that their aggressive monetary policy is working.
More Hikes?
When referring to more hikes, Powell worded it as “In determining the extent of future increases”, which could come across as “we’re not gonna do any more hikes.” I see this as just Fed talk and believe the opposite will happen. As they’ve done since the beginning of the hiking cycle last year, the Fed runs with whatever, news/data and uses it as an excuse to raise rates again. Since the economy is healthy, the markets seem to be doing just fine. Just look at the layoffs in the tech sector. Companies like Amazon actually had an uptick in stock prices after the restructuring.
Is the Job Done?
So was the 25 bips just a way to follow up the positive economic momentum in order the give the markets a break and enable Powell to have more options (whether to raise or not) come March? If one thing is certain it’s Powell’s job is not done, which as Mrs. Booth has put it, ending the Fed Put. This is only accomplished by continued rate hikes. Despite the economic growth that surprised markets, countless of people continue to file for unemployment. After all, stable prices and full employment is what on paper comprises of the Fed’s Duel Mandate. Whether or not you believe this is the main motivator of the Fed’s unprecedented hiking (which if you read any of my work at all you know damn well it’s not…)
Pivot or Pause?
Booth explains above that she doesn’t believe there will be a soft landing and despite the negative data portraying record job losses and business closings since 2009, the Fed will be selective and choose whichever data/headline to roll with that the market’s sentiment finds favorable and will allow the Fed to keep raising. Decreasing the balance sheet to her is still a form of Fed tightening, which alludes to the point I made above.
The only one having a conversation about rates lowering (pivot) is the market because it’s still in denial. A pause would allow the tighten to tighten via shrinking the balance sheet as inflation comes back with a vengeance. The way CPI is being calculated will reveal (from Booth) more accurate forms of inflation like adding the increase of rental rates in New York.
The Fed Can’t Fight the Inflation
I still don’t see why a pause would make decreasing the balance sheet easier if its already happening regardless. If anything, the increased inflation (especially in commodities since BRICS and others are selling treasuries and using those dollars to by oil etc. to prep for Davos’s war against Russia), only gives Powell more reason to hike harder and higher for longer.
The God’s honest truth though is that the Fed can’t fight this inflation because it’s not from “money printing” (demand pull) it’s from what i stated above RE commodities and messed up supply chains (cost push). Which brings us back to the original premise that raising rates is NOT ABOUT INFLATION! It’s about destroying the offshore dollar markets (ODM) to enable America to assert its monetary independence from globalist oligarchs (Davos).
It’s important to note that the Eurodollar futures curves are signalling the Fed will pivot y June, which is exactly when LIBOR is officially phased out and we’re all on SOFR (or perhaps some other collateralized rate if you’re in another part of the world). Could there be something cooking that would force the Fed to pivot before then? Something like, oh I don’t know, war?!?
As I’ve said countless times, the only way the Fed truly pivots is when they’re forced to monetize the debt that covers war spending. At this rate, Powell should go 50 bips at the very least come March.
Countdown’s Begun
Perhaps a realistic/compromised/neutral outcome is that Powell goes 5% in March and holds there. Even though the markets don’t want 5% or above, he still has to get through their skulls that he’s ending the Fed Put. Whatever the Fed does, gong just 25 bips made their job harder. This gives Lagarde a lifeline to further protect credit spreads after the Fed did so much work already to destroy the premium German debt had over US 10 yrs that I covered extensively here.
One only wonders why Powell would undo all the work he’s done. Perhaps they’re waiting on MORE positive inflation data to continue raising and hold the threat of raising 50 bips in March over Davos and the market’s heads? Luongo paints the possible scenario perfectly as Powell saying "Look, I gave you what you wanted. And look where it got us.” That would be the most baller move in the history of monetary policy. It would also play into the other Fed governors’ narratives of a 7% terminal rate. Maybe they don’t go 7%, but it’s still on the “higher for longer path until the job is done” train. Maybe we have underestimated the effectiveness of Powell’s monetary policy (which is shocking coming from me because I’ve been praising it).
Unlike what the other alt-finance talking heads say, the people at the Fed aren’t stupid. They know what they’re doing. What they are doing isn’t favorable to those that wanna talk their book on twitter or anywhere else (especially globalists who wanna undermine the American economy and nation in its entirety). And for this reason, despite an on the surface cuck-out move of only going 25, I’m still a “Powellcel”/simp for Jay Powell and his Fed that has truly done something revolutionary with monetary policy for the betterment of America and humanity.
Go #TeamFed.
Subscribe if Powell is your pal.
~ Phil Gibson