SPXN - Powell And The Fed Are More Hawkish Than You Think: Expect Economic Weakness Ahead

2024-06-12 18:34:33 ET

Summary

• At today's FOMC meeting, the Fed held interest rates steady and signaled that it's likely to cut less than the market thinks.
• This is somewhat surprising given that the econometric models I run are suggesting that the Fed has room to cut.
• Between the lines, the Fed is likely worried about cutting rates too soon and stoking a bubble with assets already trading above their value relative to fundamentals.
• I continue to believe that the economy is headed for a moderate recession and not a soft landing. The Fed's continued hawkishness should cement this.

At today's FOMC meeting , the Fed voted to hold interest rates steady, raised its inflation expectations , and guided for only one interest rate cut for 2024. The Fed's view on inflation itself contrasted with a relatively benign monthly core CPI inflation report in the morning that sent markets soaring (note that the Fed prefers to use core PCE inflation numbers to set policy). Stocks ended the day somewhat in the middle. I was surprised by how hawkish the Fed was at the press conference. While Powell indicated that the Fed has all but ruled out more hikes, policy continues to passively tighten, and the cumulative effect of tightening is showing up in a weakening labor market in the U.S. and other similar countries like Canada and the UK ....

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