The Bank and The Fed have served notice they will remain vigilant – higher for longer! Markets would be wrong to expect early easing. Wage Inflation and Energy remain very real threats over the medium term – it may trigger volatility as markets understand the new reality.
US Inflation looks to have been beaten, but that might not mean very much if the global economy is still headed into recession. Rates and consumption are a lagging problem for the markets, and there is a chance even strong economies will stall.
What is the Fed really thinking? They will probably er on the side of lower rates to avoid recession, running the risk of entrenched wage growth. Soft landings are the stuff of myth! How it effects the global economy is critical.
Jerome Powell signalled a slow-down in interest rate hikes – and markets loved it. But did he just make a long-term mistake by not decisively signalling the end of the era of monetary and market distortion? There are lessons to be learnt, not least being the role of inflation in a buoyant economy.
The Fed roiled markets over the pace and scale of rate hikes, but ultimately markets are about growth. The big issues were not thinking about enough are global recession, slowing trade, and the threats China’s evolution into a Surveillance State raise for future growth.
While Jamie Dimon warns of recession, Ben Bernanke is picking up a Nobel Prize – yet the roots of the multiple crises threatening to overwhelm markets and topple capitalism lie in the solutions they led 14 years ago. They saved the world then – who will rescue it this time?
Readers of a sensitive nature may wish to take a chill pill before reading this morning’s Porridge comment. Remember, the sun will come up tomorrow. The market might not.
Central banks, inflation and recession are the visible risks, but what if we are looking at all the wrong things?
Everyone is balancing inflation, economic numbers and this week’s Jackson Hole Central Bank smooze-a-thon to guess markets. What if we are looking at the wrong things – and economic divergence, income and wealth inequality and unravelling domestic politics are the critical factors?
The pace of US CPI inflation moderated slightly, but it’s too early for the market to conclude rate hikes are over. There are many imbalances still to resolve – especially in consumer credit. Meanwhile, the new UK premier’s clumsy attempts to blame the BOE raise questions.
The Fed just aggressively hiked 75 bp in the midst of the first major correction since 2009, making clear the game has changed, and we’re into a whole new cycle. While the market correction remains ongoing, when it flips, it will flip swiftly. Already there are positive signals to be seen – but only if you look outside the box.