Fed Cut and Paste Job, Powell's Song and Dance, The Band Plays On, Algos Gone Wild (original) (raw)

Whoa, yeah

Kickstart my heart, hope it never stops

Whoa, yeah, baby

Whoa, yeah

Kickstart my heart, give it a start

Whoa, yeah

Okay boys, let's rock the house

- "Kickstart My Heart" Nikki Sixx (Motley Crue), 1989

And the Band Played On

They met. They decided, for now. They parted ways. And the band played on.

I tried to address this on Wednesday afternoon. While my P/L is screaming "party on" like a fifteen-year-old at a rock concert, my other side, the side less easily intoxicated by euphoria, understands that something is amiss.

Oh, my main, most heavily traded portfolio ended the day back at all-time highs, just like headline-level indexes that we all follow. I really feel like an ungrateful son of a you know what complaining.

It's true. One side of me is a stock jockey. I come from the land of adrenaline-seeking, thrill-riders. I get that little jump in my heart when the ole portfolio or portfolios, if I include the ones bearing mission-specific purposes, sport digits never seen before.

I also have a sober side. In fact, that's the side that showed up for the first time as a seventeen-year-old standing on the yellow footprints like thousands before and thousands since. That's the side that drove into me the discipline to build the skills required to persevere when times get tough, when it is not so easy.

You know the adage... "Don't fight the Fed." There's another one... "The trend is your friend." By all means, benefit from what you see before you with your own eyes. Just be mentally prepared for something else. Know that there will also be a time of anguish, and that the numbers on the screen might not look so impressive when that happens.

That said, when the music starts, either dance, or become a wallflower. The official FOMC policy statement and quarterly economic projections were released on Wednesday afternoon. The statement, as I mentioned Wednesday.... was nothing more than a "cut and paste" job nearly from start to finish. The FOMC should really be embarrassed by this release, just for the lack of effort put into the text. The first part of the second sentence of the first paragraph was the only place in the entire statement where any change at all was made. The phrase... "Job gains have moderated since early last year but remain strong." was edited to read as just... "Job gains have remained strong."

Basically, that one sentence was used to both simplify and strengthen the mental image of a labor market that had started to look a little soft of late unless one only followed the initial release of the BLS Establishment Survey and nothing else, not even revisions made to that survey. There was absolutely no hint of any increased concern over rising consumer and producer-level inflation expressed anywhere in the statement.

The one shot of actual logic, though it was just part of the "cutting and pasting" was the line from past statements about it not being "appropriate to reduce the target range (of the Fed Funds rate) until it (The FOMC) has gained greater confidence that inflation is moving sustainably toward 2 percent." Hooray for logic.

Sunny Days and a Gentle Breeze

Anyone else take a good look at the FOMC's aggregate economic projections? Wow. I mean it's clear that the membership of the committee sees economic activity as heating up.

The median expectation for 2024 GDP was increased from 1.4% three months ago to 2.1%. Good thing, this is a GDP projection and not a GDI projection, I guess. Then, they would have had to admit that economic activity just is not heating up so much. Oh, then GDP stands still at or close to a 2% annual pace of growth from 2024 on through 2026 and beyond. Dance, dance, dance.

Unemployment is seen at 4% in 2024, 4.1% in 2024, 4.0% again in 2026, and then 4.1% again over the longer run. I kid you not. Is anyone here actually putting in the work? I mean any class full of high school freshmen could have handed this work in after everyone copied each other's answers. Gee whiz.

There's more. Unfortunately, there's more. PCE inflation was left where it was three months ago at growth of 2.4% and will ease down to 2% by 2026 and stay there. Forever. 2024 Core PCE inflation, in the committee's view, was increased from 2.4% in December to 2.6%. No way, dude. Yes way, dude. Don't worry, the FOMC sees core PCE moving down to 2% by 2026 as well.

Now for the Fed Funds Rate... also known as the infamous "dot plot." The committee left their median projection for 2024 where it was, at 4.6% or about 75 basis points lower than it is now. This is why you've all been watching the latest edition of "Algorithms Gone Wild" on Wall Street and then around the globe since Wednesday afternoon.

Most common-sense economists, or at least this one, had hoped for a downgrade to cuts totaling 50 basis points for the year. Obviously, this runs counter to the short-term well-being of my trader/investor side, but I'm okay with that. These two Irish Catholic kids from Queens, NY have been duking it out inside my head since that Lt. Colonel at Camp Lejeune stopped me in my tracks on the sidewalk because he had never seen a Corporal carrying a copy of the Wall Street Journal before.

As I mentioned Wednesday, the mean outlook for the Fed Funds rate for 2024 among the membership, which is not publicized, actually did grow from 4.7% to 4.8% as the number of dots now above 5% for the year-end rate moved from three to four (out of 19), so at least we do see some level of basic cognizance across the committee that inflation has not been wrapped up and placed in a box. For what's worth, the committee sees the Fed Funds Rate at 3.9% at year's end 2025, which is up from 3.6% at that time back in December. At least, there are signs of sentient life.

Song and Dance Man

Chair Powell sounded overly confident about getting consumer level inflation back down to 2% "over time." Fed Chair Powell does acknowledge that the Fed is in a bit of a spot where they don't want to move too early on rate cuts and allow inflation to reheat (maybe, we're already there, as in maybe short-term rates needed to go slightly higher) as they did in January and February. The Fed also doesn't want to act late and place unnecessary drag on economic activity. What if that drag is already slowing the economy? He's right. They're in a spot.

Powell sees that early 2024 burst of inflation as potentially the result of seasonal factors, though he does say that those two months of heat cannot be ignored. That sounded a bit Pollyannaish to me. I wonder if he's seen gasoline prices in March. The month of March is certainly not going to cool the early 2024 resurgence in consumer pricing. Heck, the Cleveland Fed's Inflation Nowcast model is banging on the door trying to tell you this. Listen.

I still think, even amid my disappointment in this performance, that Powell is the best Fed Chair, by miles, since Paul Volcker. Yes, he makes mistakes, but once he figures out his mistakes, he attacks with vigor and that is impressive. It also does not hurt to be compared to Alan Greenspan, Ben Bernanke, and Janet Yellen, all relative lightweights compared to Volcker and even Powell.

On the Balance Sheet

Speaking on the Fed's "quantitative tightening" program, Powell said "The decision to slow the pace of runoff does not mean our balance sheet will shrink but allows us to approach that ultimate level more gradually. In particular, slowing the pace of the runoff will help ensure a smooth transition, reducing the possibility of money markets experiencing stress."

The program continues to hum along at a reduction of 60BpermonthinholdingsofU.S.Treasuriesand60B per month in holdings of U.S. Treasuries and 60BpermonthinholdingsofU.S.Treasuriesand35B per month in holdings of agency-backed mortgage debt securities. The balance sheet currently stands at 7.541T,downfromahighof7.541T, down from a high of 7.541T,downfromahighof8.962T in 2022, but still well above the 2019 pre-pandemic low of 3.761Tsub3.761T sub 3.761Tsub1T levels that came ahead of the "great financial crisis" in 2008.

As both Powell and Dallas Fed President Lorie Logan have been telling us, ideally, the tapering off of this program would be best if it coincided in some way with a reduction in the use of the Fed's overnight reverse repurchase agreement facility and a decline in bank reserves from "way too much" to simply more than adequate.

Economics (All Times Eastern)

08:30 - Initial Jobless Claims (Weekly): Expecting 215K, Last 209K.

08:30 - Continuing Claims (Weekly): Last 1.811M.

08:30 - Philadelphia Fed Manufacturing Index (Mar): Expecting -2.2, Last 5.2.

09:45 - S&P Global Manufacturing PMI (Mar-Flash): Expecting 51.7, Last 52.2.

09:45 - S&P Global Services PMI (Mar-Flash): Expecting 52.0, Last 52.3.

10:00 - Existing Home Sales (Feb): Expecting 3.93M, Last 4M SAAR.

10:30 - Natural Gas Inventories (Weekly): Last -9B cf.

The Fed (All Times Eastern)

12:00 - Speaker: Reserve Board Gov. Michael Barr.

Today's Earnings Highlights (Consensus EPS Expectations)

Before the Open: (ACN) (2.66), (DRI) (2.64)

After the Close: (FDX) (3.51), (LULU) (5.02), (NKE) (0.76)

At the time of publication, Guilfoyle had no positions in any securities mentioned.