Which Way Wednesday – Penultimate Fed Decision Day

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I think the Fed will raise this afternoon – they certainly SHOULD!

The latest economic data show that inflation is still running high and the labor market is still strong, despite some signs of slowing down. The Fed has already raised rates 4 times this year, by a total of 1 percentage point – after raising it 4.25% last year, to combat inflationary pressures. But is that enough to keep inflation under control and maintain the credibility of the Fed’s 2% target?

Let’s look at some of the key inflation and employment indicators since the last Fed meeting on September 20th:

The bottom line is that inflation is still elevated and above the Fed’s target, while employment is still robust and near full employment. These data suggest that the Fed has not done enough to tame inflation and NEEDS to raise rates again today to signal its commitment to price stability and anchor inflation expectations BUT Fed policy is, more than ever, a political football and, with banks suffering from high interest – the Banking Cartel that is the Fed may do what’s good for their masters and not what’s good for the country.  

Meanwhile, the earnings misses keep coming as companies struggle with higher interest rates and still-high inflation while the customers are running out of disposable income. Personal Income took a dip last month while Personal Spending once again climbed 0.7% – plunging Consumers well over $5Tn in non-mortgage debt. And, just in time for Christmas – student loan payments are starting up again after a 3.5-year pause.  

But back to earnings. Last night 19 (54%) out of 35 companies reporting missed earnings and/or guided down and they were: AEIS, EQH, EQR, FLSR, HUN, LFUS, LTHM, LUMN, MTCH, OI, OKE, PAYC, PRO, SAFE, SON, TX, XHR, YUMC, ZWS and this morning is already looking ugly at 7:30.

S&P 500 Chart DailyDespite this week’s bounce, the NYSE is still below 15,000 at 14,919 and there is no recovery until that’s back over 15,000. Meanwhile, as you can see on the S&P Chart, we fell from 4,550 to 4,150 which is 400 points and that makes for 80-point bounces so 4,230 is weak and we’re not even there yet and 4,300 would be a strong bounce, followed by 4,380, which was the strong retrace support back in August – so the 5% Rule™ is certainly running the market at the moment.

USD Chart HourlyThe scariest thing that happened yesterday was the sudden, sharp rise in the Dollar, which had fueled the rally as it dropped this week. Almost all at once yesterday morning, the Dollar popped back over 106.66 and closed at a 15-year high.  

There are lots of reasons for this – there’s an overall flight to safety as the war(s) heat up and China’s Local Government Debt came in at $3.9Tn at the end of September, so now over $4Tn.  Meanwhile, over in Japan, the Yen continue to collapse like a Fukishima containment wall and neither the BOJ or the PBOC are doing enough to reverse the slide in their currencies so PRESTO!!! – a stronger Dollar.  

While Economists’ expectations of a recession have steadily waned in the wake of the surprising resilience of the economy and labor market, Americans continue to be squeezed by high prices. The lingering impact of inflation, even if it has improved significantly since last year, remains a key hurdle to a more significant rebound in confidence.

Yesterday’s Consumer Confidence Index was a complete disaster, with lows creeping back to last year’s crush, when the S&P fell from 4,550 in March to 3,580 in October – which puts our recent fall in perspective – for now…

Today is all about the Fed and what Powell has to say at 2:30, join us for our Live Trading Webinar at 1pm, EST, where we’ll discuss it all live – as it happens.

 

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