Decoding Powell's market ripples: Navigating the Fed's caution and the unsettling clues in the data

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Outlook: Sometimes the markets are thicker than two planks.

Outlook:Sometimes the markets are thicker than two planks. Yesterday Fed chief Powell said exactly what he has been saying for some time now—the Fed wants to be cautious but will tighten more if inflation doesn’t behave itself. The key sentence repeated around the world: If it becomes appropriate to tighten policy further, we will not hesitate to do so. This fell like a rock into the pool of markets betting that the Fed is done hiking and more, that cuts are coming as early as June next year.

And market expectations are poised to jump on a dime. That’s why the Fed can’t say out loud that it sees a splendid supercore feeding plain core by such-and-such a date--the market would overreact and bring forward the first cut to next week. We get the next CPI reading on Nov 14 . This is not the PCE price metric the Fed likes but is tremendously influential in the public at large, including finance professionals. For Sept, we had headline CPI at 3.7% and core at 4.10%.

 

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