FRB Chair Powell was reiterating prior Fed remarks that a usually large hike could be appropriate next month but then he commented that interest rates “will remain elevated for a period of time,” crushing the belief that the Fed may pivot in early 2023.

Many will agree a reason for the advance from June’s lows was under the belief the Fed is almost finished in this tightening cycle and a change in monetary policy would come in several months.

The FOMC is fighting to regain its integrity of an inflation fighter, perhaps risking of overshooting to regain the high ground.

As noted many times, the Central Bank is fighting supply side issues using demand side techniques.  The problems are entirely different with a different set of responses.  Unfortunately, monetary policy can only impact supply side issues so much unless all are willing to accept great pain.

There was no mention of fiscal policy or QT.  In speeches past the Chairman has commented about the unsustainability of current debt levels.

Has there been a change in market psychology?  Perhaps the only certainty to write that each data point will be greatly scrutinized to determine whether pricing pressures are abating.

Speaking of which, this week’s economic calendar is comprised of several top tier indicators including the ISM Manufacturing Index, durable goods orders and several employment statistics including the BLS Employment report on Friday.

Commenting about Friday’s market activity, led by the 4% decline in the NASDAQ, equites fell by the greatest amount since mid-June on FRB Chair Powell’s short and clear message that rates will stay high for some time.  The major averages are now on the brink of violating their 100 day moving averages.  Treasury prices also declined.

Last night the foreign markets were down. London was down 0.70%, Paris down 1.74% and Frankfurt down 1.36%.  China was up 0.14%, Japan down 2.66% and Hang Seng down 0.73%.

Dow and NASDQ futures are off 0.80% and 1.30%, respectively on monetary policy concerns.  Many are now starting to ask about the potential elephant in room…quantitative tightening (QT) which is about to commence in earnest in several days.   The 10-year is off 17/32 to yield 3.11%.


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