It was a strange press conference. As we discussed yesterday, stocks would react kindly…
…if Powell is successful in convincing
investorsalgos that the economy is strong but there is no wage pressure and inflation poses no real threat.
I think he succeeded in portraying the economy as strong. This morning’s economic data helped bolster that narrative (as long as you don’t look too closely.)
As far as wage pressure, the official data continues to suggest it’s not a problem just yet. As far as inflation, however, I think he came up short.
Unless Trump is successful in reversing the damage he touched off by ripping up the Iran deal and starting a tariff war, inflation is a problem.
As long as inflation is a problem, rates will continue to rise. There are many who insist rates need to rise quite a bit more in order to stave off runaway inflation. Ordinarily, this might not be a problem. But, given that America faces runaway deficits and debt, it is a yuuuge problem.
Perhaps it was this realization that unraveled the ramp job as soon as Powell finished speaking. It’s simply not possible to keep inflation in check in the midst of a major trade war and with much of the global oil supply being taken off the market.
Fortunately for the bulls, SPX found support at an important channel line. But, it’s not the sort of channel that lasts.
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