The Federal Reserve is not changing its tune any time soon.
The latest statistics and the latest “Fed talk,” show that the Federal Reserve is sticking to its guns.
The Fed doesn’t seem interested in talking about changing its thrust until…the middle of 2023.
Investors, do you hear that?
The stock market, however, continues to waver.
Let’s take a look at the data.
The Federal Reserve began its tightening program in the middle of March 2022. More specifically, the Fed changed policy at its meeting of the Federal Open Market Committee on March 15 and March 16.
From that point on, the Federal Reserve has kept its focus and has not waivered from its effort to reduce the rate of inflation in the United States.
Investors in the stock market keep trying to find another narrative, one that will indicate that the Fed must “pivot” from its focus on monetary tightness, but, so far, at the end of the effort, the Fed is still holding steady to its plan.
As a consequence of this behavior, the “trend” of the stock market is down. The investor’s actions in responding to the various narratives floating around is volatility.
This is what we see when we look at the stock market figures since the middle of March.
Investors are finding lots of other stories around about where the economy and the markets are going to go.
For example, we read in the Wall Street Journal:
“A slowdown in inflation sent stocks ripping higher last week, and the dollar and bond yields into retreat.”
“The S&P last week wrapped up its best stretch since the summer.”
Furthermore, the strong labor market and retail-sales data “suggested the economy has a way to go before higher borrowing costs cause the kind of downturn that could prompt the Fed to reverse course.”
But, “U.S. existing home sales fell for a ninth straight month in October….”
There just seems to be no clear-cut picture of what is going on in the economy.
The next story people are talking about relates to the new forecasts of corporate earnings. This is expected to be coming up in the next couple of months.
Uncertainty clouds the picture and the investment community still seems to have the belief that the Federal Reserve will “back off” from its tight monetary policy as fears of a market crash or other disruption begin.
Unfortunately, analysts seem to have the view that Mr. Jerome Powell, the Fed chairman, and the rest of the Board of Governors. are particularly sensitive to being a part of a catastrophe.
All during 2000 and 2001, Mr. Powell and the Fed made sure that they always were erring on the side of monetary ease. They did not want to be held accountable for a crisis.
Thus, the feeling is that Mr. Powell and the Fed, being very sensitive to a financial drama, will “pivot” sooner rather than later.
But, as I see it, there are two real clouds on the horizon.
The first is that the yield curve in the Treasury bond market has been negative for a fairly long time now.
The Treasury yield curve first turned negative this year in early July. It has continued to become more negative as we have moved into the fall and into November.
Almost always, the U.S. has gone into a recession, sometime soon after the yield curve has become negative.
The betting on an economic recession has grown stronger as the yield curve has become more negative and has extended its time with a negative slope.
A future recession is for real, again the problem concerns the timing and the magnitude of the forthcoming recession.
A second cloud over the coming future comes from the cryptocurrency market.
The bankruptcy of FTX and the stories that are coming to light about how this organization, whose market value grew to $32 billion, succeeded, is causing concerns about the whole crypto-world, a world that road to its major success during the time the Federal Reserve was pumping billions and billions of dollars into the financial community.
What is going to happen to the cryptocurrency market over the next six- to twelve months?
If you would like to get a little nervous, take a look at what happened to the price of Bitcoin over the past 12 months.
The pressure is on the price to fall further, but no one knows what might happen as the government and the regulatory bodies get their hands on the Bitcoin world.
To me, the Federal Reserve continues to dominate the markets.
My view of the Fed right now?
The Fed is going to continue to follow the path of monetary tightness it began in March.