The Federal Reserve sent a message this week.
But before I unpack that, I want to start today’s note talking about Vikings again.
Not the lawful “farmers and traders” I described last week but the Hollywood version of warriors and raiders.
I was watching “The Northman” a couple of nights ago (for probably the fifth time ¯\_(ツ)_/¯). And in an early scene, a band of Viking Berserkers were rowing up a river to raid a Russian village.
The scene caught my attention because they didn’t sneak up silently under the cover of night. Instead, they moved in full daylight, sounding their horns all the way.
Now, you could call such a tactic arrogant. Though when you don’t fear failure, you might as well make a show of it.
But it’s also efficient.
Announcing their coming for miles around scares up the local “game.” Upon hearing the bone chilling call of the Vikings approach, the Rus locals would inevitably ditch their plows and homesteads and make haste to the local, fortified village seeking protection.
With their prey ensconced tightly within the Village walls, the Vikings were spared the trouble of chasing everyone down, farm by farm.
Call it ducks in a barrel if you will.
Well, the Fed announced its coming this week. But I’m not sure that anyone cares.
Is This Thing On?
From four separate Fed Heads we heard:
- “I think there is going to be a lot more inertia, a lot more persistence that maybe we don’t want” with respect to inflation.
- “The most important risk I see is that if we tighten [raise rates] too little.“
- “It [the Fed Fund rate] is going to be above 5% – how much is going to depend.”
- The Fed still has a “way to go” to kill inflation.
And that was just Tuesday.
To drive the message home, yesterday Cleveland Fed’s president Mester stated “Indeed, at our meeting two weeks ago… I saw a compelling economic case for a 50-basis-point increase.” A sentiment echoed later in the day by St. Louis’ Bullard.
As I’ve stated for months, the Federal Reserve is in a fight for its life.
They are fighting to be the cleanest dirty shirt in the laundry basket-case of global central banks.
To turn timid now would cede the high ground in the battle for reserve currency dominance (even though that doesn’t mean what it used to).
But equity players must be itching for a fight. The S&P is up 5.5% since the Fed’s 25 basis point hike on Feb. 1. And, despite this week’s bluster, it looks like we’ll end this week close to where it began.
Maybe traders have had enough of the Fed pushing everyone around.
Maybe they’re calling the Fed’s “higher for longer” bluff because reducing the overwhelming burden of debt through inflation has always been the path of least resistance.
Either way, there’s nothing efficient about the Fed’s inflation siege. It stepped into the inflation fight on its back foot by mischaracterizing the threat as “transitory.” And now finds itself hemmed in by its maximum sustainable employment mandate.
Which means even more Fed-driven hysteria and volatility for equities and bonds in the coming months.
Take What the Markets Give You.