I Would Take Powell At His Word

 

At the end of last week, markets broke out the pipes and smoked the "hopium".  They are betting that the Fed will back off of the interest rate hikes in the coming months and the indexes posted Friday gains.

I am not convinced that the Fed will stop raising the overnight rate.  I do believe that they will continue to unwind their balance sheet where Treasury and mortgage backed securities are concerned.  The QT strategy is scheduled to kick into overdrive beginning in September.  

Powell's own statement was that on the current inflation problem, "we can not fail on this" when speaking to Congress.  The reality of the situation has settled in at the Federal Reserve (finally).  They have been monkeying around and meddling with the price of credit and the terms of underwriting for decades.  The consequences of actions taken by Greenspan, Bernanke, Yellen and others have manifested themselves and have finally come to a head.  I think Powell is beginning to understand the gravity of the situation.

One talk show host I listened to recently voiced a concern that we could have years of inflationary pressure on items that everyone buys on a regular basis (fuel, groceries, utilities, medicines) but deflationary pressure on asset prices (real estate, stocks) as the Fed increases interest rates to more normal levels and removes stimulus via QT.

Rents continue to skyrocket with many evictions in the pipeline.  The poor who do not own their homes would be crushed if things continue as they are progressing.  There are far more poor people in this country than rich or comfortably middle class people.  Social upheaval could become a real problem in many parts of the country.  Many of these working poor are also heavily in debt.

The cheerleaders on Wall Street make their fees by selling fear and by selling hope.  Last week, they advocated that their clients break out their pipes and buy some "hopium" and light up - the markets responded positively to their brokers' requests.  I would be very surprised if those collecting their fees actually have their own personal money where their mouths are at.  I would guess that a few do - there are always some drug dealers who do make the mistake of getting high on their own supply.  Always remember that during the last credit crisis one Goldman Sachs trader was caught referring to his clients as "Muppets" - that is what they truly think of their clients.  Pushers and junkies.