A Click Bait Strategy?

 It appears that Jerome Powell has found a new strategy, joining the ranks of social media as a last resort. This week the Federal Reserve Board voted to increase interest rates another .75%, but it was his comments and the responses to a variety of trigger worthy questions that brought out the click bait. “Job gains have been robust”, ouch, “the unemployment rate has remained low”, ouch, “inflation remains elevated” run for cover! The speech from Chairman Powell is important, in my opinion more than his more aggressive, and popular, off the cuff statements.

 In response to questions regarding a pause in rate hikes the response was that “although rates could be increased less there was no reason to think a pause was near.” The intent was to maintain the track of raising rates for the foreseeable future until there was “good evidence” that a series of monthly readings show inflation was declining. Sounds like common sense, although the scarier language does have some impact, we’ll just have to see how it all effects the markets for now. As expected, after yesterday’s comments the broad indexes moved sharply lower. That was more of a reaction than simple fear.

 Inflation is the story of the consumer. In the 1970’s when I was out of college and working on Wall Street in various accounting jobs, I made a salary respectable for the times, and had no hesitation to spend it without regard to cost. In short, I was oblivious to rising inflation because I had little responsibility to anyone but myself. Flash forward and we find ourselves at a time where for the last two decades the country has seen clear declines in marriage and childbirth, leaving nearly two generations with more consumers that are responsible for no one but themselves, feeling the power of undisciplined spending. That is what the Fed knows they have to slow down, and that can only happen if wages stop increasing, and most troubling of all, jobs are lost.

 Which brings us to tomorrow when we’ll see the monthly release of Unemployment Data. The expectation is for Job Growth for October to increase by 200K and the Unemployment Rate to increase from 3.5% to 3.6%. On the wage side, for the year, Average Hourly Earnings is expected to decline from 5% to 4.7%. If these numbers meet the consensus, that would be good, but not great. Over the next few months, the same outcomes would need to be evident to the Fed, who are clear in understanding the lagging outcome of the data they watch.

 Spend, print money, create a deficit, keep printing more. That is the current fiscal strategy of government. I don’t need to emphasize my wish for an outcome of the election that creates gridlock. This because both sides of our government have been recklessly spending for decades and that habit running into wall might be an important piece of the solution to bring inflation down as well. Also, worth noting is preexisting capital that has been raised since the pandemic, along with overall budget parameters, in my opinion, could see spending moving toward infrastructure, technological and industrial manufacturing, and away from the pockets of the voters

 

For now, the markets are working off an overbought technical condition created by the rally in October. When that said condition reverses, additional buys, and sales will ensue. Cash will remain plentiful and without sounding too redundant, so will patience.