A Failure to Communicate

Remember that scene in Cool Hand Luke where Paul Newman mouths off to the Captain after a failed escape attempt? He doesn’t initially appreciate the gravity of his situation. He is soon reminded.

That’s what yesterday’s post-Fed presser felt like. Powell was trying to convey the sense that the Fed means business. It is going to get serious about escaping the inflationary mess it has stepped in.

The market (well, the algos) didn’t hear that. They heard Powell say exactly what they expected and, spurred on by the huge bets lined up on the bearish side of the ledger, decided to mouth off.

Clearly, they don’t appreciate the gravity of the situation, as we were reminded by this morning’s labor productivity report – the worst in 75 years.

We would do well to remember that we’ve had these moments of euphoria before. The carefully curated decline which began in late March…

…has seen more than a few deviations of late.

But, facts are still facts. Inflation – especially very sticky labor costs – is still a problem, and the Fed waited so long that they now have no choice but to tighten into a recession. There was a time when they could have engineered a soft landing. But, that opportunity was, dare we say, transitory.

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