I knew beforehand, the odds did not speak to my hope going into the announcement yesterday. I knew it wasn’t going to happen, but I was hoping for a surprise 0.25. If I’m being honest? Just to screw with everyone. I don’t mind the occasional bedlam. I am sort of ‘built’ that way.
So I read over the statement a few times. I listened to the press conference.
Hear me out.
I think that may have been one of the smartest moves I have seen the Federal Reserve make in a long time. Possibly? The smartest ‘binary decision’ I have ever seen the Federal Reserve make; in my nearly 30 year career as a trader.
I will let you know up front? I’m no “Fed-cheerleader”. And despite everyone ‘praising his genius’? I’m no fan of Greenspan. He started off well, and strong. He knew how to keep the political wolves at bay in order to retain the Fed’s political independence (by literally, admittedly, speaking gibberish to political inquiries). But near the end of his term, the actions of the Fed on his watch … or I would rephrase that as saying … the inaction of the Fed on his watch? Led to them being completely asleep at the wheel, which led directly to the Financial crisis of 2008. In 2005 it was evident to anyone trading at the time … that the problems associated with the dot com bubble were past, and the economy was on sound footing. I still remember an Equity short that ripped my face off at that time. But everyone was caught up in the normalcy bias of praising “Greenspan’s genius”. And so, in 2005, 2006 and 2007, the easy money policy of the Fed led directly to the Housing crisis of 2008. Greenspan himself somewhat later admitted to this policy error. He then went on to say that “no one predicted the 2008 crisis”. Bologna. There were thousands (yes, I said it … THOUSANDS) of us in the Financial Industry who knew. The gig was up. We talked quite openly about it at the beginning of 2008.
I will die on that hill.
And point in fact? I have been sharply critical of the Federal Reserve’s maneuvers since 2020. I’ve talked with CEO’s and Traders around the planet. People who align themselves on all ends of the political spectrum (as well as the politically neutral). We all seemed to agree their moves were INCREDIBLY foolish in 2020. They lowered too fast, too quickly, and for too long … in response to CoVid-19. When Fiscal Policy began to step up and place funds directly in the hands of the consumer at the same time supply chains were interrupted? I knew Inflation was not “Transitory”. I would nearly scream to that effect … at the top of my lungs to anyone who would listen. Although I hate the word “call”, it was probably the easiest ‘calls’ of my career.
Inflation always has been, and always will be, too much money chasing too few goods.
But at the same time, I’m no ‘perma-Fed-hater’. That would be too easy. I try to be fair. There were actions of the Federal Reserve in the past three decades of which many were extremely critical. Whereas I found such moves to be … well … I’ll just say “not stupid”.
As I was saying earlier, I read over the statement a few times. I listened to the press conference. The Fed did not merely ‘pause’ interest rate hikes yesterday? But they sent a hawkish tone that they were raising their projections which allows them to raise the rate by an addition 50 bps in the future. Which gives them maneuverability.
This touches on another point. I want to be clear … I have not said that inflation has gone structural. Merely that I am concerned that it could ‘go structural’; deeply imbedded within the behavior of consumers and producers. And as stated, I am waiting until the July prints, before I am willing to make any decision. And I saw similar thinking on the part of the Fed yesterday, in their statements.
I have long said that the Federal Reserve’s main problem is that they have some of the most intelligent people on the planet. Some of the working papers published in the Federal Reserve ecosphere are absolutely brilliant. But they don’t think like a ‘trader’ would think; and this leads them to pivot too late, or too early. But yesterday? They seemed to be thinking more like a ‘trader’. And that … almost more than anything else … I found to be extremely encouraging.
Yesterday? They implemented a strategic delay. Sort of what I am doing at the moment, in evaluating my thoughts regarding inflation. They have ‘paused’, and thus have alleviated concerns of the ‘faint-hearted’ on recent rate hikes. It gives them a few months to examine data as it comes in (as I am doing). At the same time, not with actual hikes but with language they embued a hawkish ‘tone’ to the markets, by intonating the need for future hikes. That language itself could help to alleviate any structural inflationary problems. And they have communicated and simultaneously “given future permission” to themselves, to proceed with future rate hikes and to ‘go to war’ with inflation should the need arise. If our concerns for structural inflation are unfounded? Then this ‘pause’ will have come at exactly the right time.
I’m not overly excited or ‘dancing with glee’ or anything.
But I would give them a quiet and brief … golf clap.
Let’s see what the next few months gives us.
