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The Fed finds itself engaged in a currency war.
And in war you use whatever moral, empirical or intellectual cover you can find to justify more war. Currently, the Fed controls the battlefield, and it will use whatever cover it can to gain ground.
Right now, that cover is inflation and jobs. But the Fed has plenty of rabbits to pull from the “reasons to keep hiking” hat, should those two excuses fade alongside growth.
But Pivoters gonna Pivot. Once the market settles momentarily lower (unless something breaks and the only moment will be a Minsky one) they’ll go back to goal-seeking scenarios for their rising market hopes.
Unfortunately for them, the Fed confirmed yesterday that hope is not a strategy.
In his public comments immediately following the meeting, Fed Chair Powell went Big Country on the Pivoters:
“The question of when to moderate the pace of increases is now much less important than the question of how high to raise rates and how long to keep monetary policy restrictive.”
“…pausing is not something we’re thinking about…”
To which the market responded with “the worst 90 minutes of a Fed day in history.”
That bloody battle was due in part to the headwind that higher interest rates place on the present value of future earnings.
Which brings us to more of what’s possible when it comes to plumbing for a stock market bottom…
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