On Tuesday, when PPI (Producer Price Index) numbers came out, the market rallied.
Then CPI (Consumer Price Index) on Wednesday and the same thing.
The interesting thing to me is that people saw the reports and said “inflation went down”
Because actually it didn’t.
Inflation rarely ever goes down, it usually just slows down — but it’s still growing.
It’s a bit like a car that was speeding at 85 MPH tapping on the brakes and so now it’s going 60 MPH.
It’s still moving forward — it’s just not getting there as fast.
And so while the market rallied, the Fed is still in a tight spot. Because their only tool in the battle against inflation is rate hikes.
But those high rates are causing some real pain.
People can’t afford to live anymore because everyday needs like food, cars and housing are already sky high — and still going higher.
So the Fed is stuck between a rock and a hard place, with inflation bearing down on them from one side and real people getting beat up on the other side.
It would be easy to feel sorry for them, if not for one thing: They brought it on themselves.
Do you remember back a few years ago at the height of the pandemic?
I can still hear Jerome Powell, Chairman of the Federal Reserve saying “transitory inflation.”
The phrase drove me crazy.
Meanwhile, I still remember being on Ask The Pros where all the panelists, including me, could see clear as day that inflation was hitting in a big way — and only growing.
It’s baffling how we were able to see that so clearly, but The Fed was so blind to it.
So while I don’t envy the Fed Chief, I also put the blame for the record inflation we’ve been through over the past few years squarely on his shoulders.
Now, if the Fed cuts rates as they’ve hinted they might before the election, they’d just be playing politics.
They ought to wait out the year, keep rates steady and regroup after January 1 to see where the economy is and if a rate cut is appropriate.
But they won’t do that.
How do I know? Because the Fed tends to make bad decisions.
The “transitory inflation” example I pointed out above wasn’t their first time and it won’t be their last one.
What does it all mean for us as traders and investors?
It means we need to stay sharp, keep our eyes on the data, and not get lulled into a false sense of security just because the market rallies on a headline.
The Fed’s decisions in the coming months will have a huge impact on the markets, and whether they stick to their guns or start playing politics, we need to be ready to adjust our strategies accordingly.
As of now, with the S&P futures firmly above this key level I called out, I’m cautiously optimistic that we could be headed for another all time high.
From there? Well, let’s just keep an eye on things.
— Geof Smith
P.S. Gold just entered an acceleration cycle, and this is exactly how I am playing it.
