The doves are up in arms, incensed that the Fed would dare raise rates (and more to come!) in the midst of an economic downturn. Never mind that most of these doves were the ones pounding the table last week about how wonderful the economy is.
Are they right? Yes. And, no. Here’s why.
When the Fed first started talking about needing to aggressively raise rates, inflation was a problem. Interest rates were spiking higher which, with $22 trillion in debt and a massive budget deficit, would sink the economy that much faster.
But, the White House got the message and started working to push inflation lower. First came the tweets, which didn’t help at all. These were no doubt followed by back room negotiations, which also didn’t help.
Finally, Jamal Khashoggi had the bad fortune to be butchered by the Saudis. In the face of international outrage, Trump finally had some leverage. He could protect MBS and friends; but, it would cost them. Beginning the very day that Khashoggi was killed, WTI and RB plunged over 40%.
CPI followed suit, but not in time. Because the YoY delta in gas prices will be negative in December, CPI might very well decline below 2%. But, it won’t be reported until January.
It was enough to make the Fed eliminate one 2019 rate hike, but not enough to forestall yesterday’s rate hike or assuage the doves regarding the path forward.
If CPI comes in at 1.9% in January, the Fed can say “look, no more rate hikes for a while ’cause we’re data dependent.” The doves will love that. But, it’s too late for 2018.
On another note, I heard someone on CNBC this morning say that it was wonderful that the US dollar was declining, as if this was a good thing for the markets. Obviously, this person doesn’t look at charts, or at least the USDJPY chart.
As expected, the pair is plunging toward its SMA200 — with the usual impact on stocks.
More bad news for bulls: VIX, which has toyed since Oct 11 with a fan line off its Feb highs, is seemingly breaking out.
Our downside targets remain unchanged.
continued for members…
Here’s the detailed chart with upside targets.
As we expected, DXY broke down to its channel midline and EURUSD is threatening a trip up to its SMA200.
This leaves ES under pressure this morning with the 2460 target 16 points below its overnight low. Obviously, this could be delayed.
Likewise, SPX has a very good chance of seeing its falling white channel break down or expand, with the 2421 and 2448 targets on deck. It faces the same issue of a potential delay.
Oil and gas are still under pressure — with a very good chance at this point of the rising channels breaking down all together. 
I’m working on updates on gold, bonds and some secondary indices. Will be offline for the next few hours.
More later.
Comments
2 responses to “Did the Fed Blow It?”
It would also seem we are at a monumental point. This morning, did we just complete A-B-C correction from Oct highs on the DOW and SPX, I did not check the Nasdaq… We may yet reach the targets you outline, but perhaps the most hated market does and A-B-C-D-E into 2019 or even worse, we form a right shoulder into April. never forget 2016 election night. This market and presidency has been planned for a while…
I’ve never been any good at reading Elliott Waves. But, if Nov 8 is B, then I guess you could make that argument. But, the downturn since then is kind of a mess – especially since Nov 30. I’m more comfortable with the channel picture which says the yellow channel bottom is around 2448 and the purple channel .236 line is around 2300 and bottom will reach important Fib level of 2138 in March. I never forget election night!