The Fed has spoken, and it wasn’t a major event.
I guess that is good news.
Afterall, we don’t want them manipulating the market.
But this is setting up for a December to remember.
Just not in a good way for the Fed.
The Fed leaving rates unchanged is still restrictive on the economy.
This is still part of the tightening process by the Fed to reign in inflation – which is largely subdued.
And that’s at the heart of the elephant in the U.S. economy right now.
The only way for the Fed to deflate this inflated economy, is to sink it.
That path is as set as it has ever been.
Here’s why…
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As the Fed mentioned in their announcement, the economy is strong.
That was evident last week, when we looked at the explosive GDP growth in Q3.
The thing is this growth already isn’t expected to last. And higher rates for longer is a doomsday scenario.
Not just for the stock market.
But for the housing market, the U.S. economy, the global economy. This will be a widespread crash.
The longer the hold rates elevated, think about 4%, this is only going to build up to more pain.
Consumers are already maxing out credit cards, trying to tap equity in their homes and faced with a series of lay offs and relatively low pay in the face of inflated prices.
Inflation, year-over-year, is tamed for the most part.
The issue is we, as consumers, are stuck with elevated prices that never retreated after the initial inflation spike.
Why this is a December to Remember
Now, the strength in the economy can prop us up for a bit longer.
I’m not calling for a crash before December.
What I am saying, is the Fed is setting up for a pivotal meeting come December. With rates held steady for two straight meetings, already hiked rates three times in 2023, all eyes will be on what the Fed does just ahead of the Christmas holiday – the biggest spending season of the year.
With incoming data about consumer spending, inventory levels, wages and corporate profits, the Fed will be a key event (which has become the norm lately).
While Mr. Powell, the current Fed chair, may thing he is setting up for a good December to follow in Lexus’ footsteps with a December to Remember, he is not likely going to get it in a good way.
This December, and for the most part his time as Fed chair, is going to be remembered in a not so pretty light.
That’s my opinion at least.
While this market has bounced this week, I’m not chasing the rally.
After my rant today, and knowing how bearish I am, you could have seen that coming.
But, I am, and still have, some bullish plays on the table and more on the way.
I’m just more selective about those as we continue to position for a bigger decline in the weeks and months ahead.
That’s all for today.
Let’s get it!
Regards,
Chad Shoop, CMT
Editor, Bank It or Tank It ELITE