Jerome “Jackson Hole” Powell has the same problem that many parents have, that being tough talk doesn’t get it done without painful follow-through.
And, more specifically, the lack of such firm action in the past weakens each successive round of tough talk.
No matter how many times mom threatens “wait until your father gets home” or takes matters into her own hands by vowing to take away privileges, allowances, or toys, if it doesn’t happen, or the time-frame gets shortened in response to tantrums, the kids know who’s in charge.
Hint: It isn’t mom or dad.
So it is with investment markets, which often have a been here, seen that take on all of Powell’s rhetoric about how tough he and his fellow central bankers will be in getting raging inflation under control..
Powell and his ilk are in Wyoming late this week. If you were hoping for good news similar to the crushing election defeat that turncoat Republican Liz Cheney suffered in Wyoming recently, you were disappointed.
Or maybe you weren’t. Borrowing from the murky language method of his predecessors, Powell’s public remarks were and are full of vague generalities and conflicting remarks that make them a verbal Rorschach test in which the message is open to interpretation of the viewer/listener. Just substitute words for inkblots.
What Powell seemed to say in his speech this morning was that the Federal Reserve is resolved to fighting inflation, even if that slows the economy, puts people out of work, and generally makes life difficult for you underlings. But it’s in your best interest.
Powell and his group have been raising interest rates, but the effect is a lagging one, with such “luxury” items as food, energy and housing slow to get the word that Powell is getting tough!
In the past, when the Fed has embarked on this mission, either by raising interest rates or slowing Fed purchases of assets such as mortgage-backed securities, investment markets have tanked – so-called temper tantrums – and the Fed quickly took it all back.
Powell was stressing today the Fed was going to err on the side of performing too much restrictive action, again in the name of inflation reduction.
Funny, just a year ago, at this same event, albeit a virtual one due to COVID hysteria, Powell was assuring us inflation was “transitory.”
It wasn’t and isn’t.
Investment markets were on pause ahead of Powell’s speech. They went down a bit as he spoke, recaptured those losses quickly and now, there’s a mixed message of stocks selling off but bonds, which should be affected adversely by rising interest rates, hanging at about even. All this at 10:30 a.m. or so. He’d begun speaking just before 10 a.m.
To restate, Powell gave us a Rorschach test, with listeners taking away from it exactly what they wanted to hear.
I tried to play this by buying in advance the DUST exchange traded fund, an inverse vehicle that rises when gold mining stocks fall. I bought yesterday at $22.09 a share and sold a few moments ago at $23.15.
That sell point was a revisit of a previous daily high, that had been hit while Powell spoke. The price retreated into the $22.20s as he continued to speak, but rallied hard when he ended and human analysis took over from computers punting around prices based on key words.
I got it right, sort of. The daily high now sits at $23.36, so I sold, too soon. Also, I didn’t have thousands of shares to make it a good payoff. But I made a few pennies and any profit is a good profit.
The perceived message of Powell, after initial market doubt, now seems to be weighted toward belief that this time he’s serious.
If he is serious, that’s good news long-term for the economy and inflation, but it’s going to be painful getting to that long term.
Sam Ross Jr's site 