The Reckoning

The Fed saw the current wave of inflation coming. After all, they created it, fed it, and cheered it on as it enriched investors while threatening the finances of everyone else. Those few who questioned their actions were assuaged with economics doublespeak, assured that this new inflation policy was more logical, that inflation was transitory, and that the economy/market was doing so well that everything must be just fine.

Anyone who puts gas in their car or buys groceries knows better. When the stimulus payments and enhanced unemployment benefits ran out, consumers hit a wall. We’ve seen the proof in retail sales and consumer sentiment.Anyone buying a used car, leasing an apartment or contemplating buying a house knows it too. Prices have soared, leaving an entire generation with little hope of ever owning a home.

It’s just as bad or even worse all over the world, as central banks everywhere have embraced what was billed as the ZIRP free lunch. To characterize it as such, however, gives them too much credit.

More accurately, it’s a transfer of wealth: from the lower and middle class to the wealthy; from savers to spendthrifts; from the prudent to the speculator. At best, it pulled price appreciation and profits forward. At worst, it has created a price bubble that exceeds the worst in recent history.

In trying to insulate the markets from business cycles and the effects of a global pandemic, central bankers have paradoxically increased the risk of a crash. The Fed knows this, which makes today’s Fed meeting all the more important.

Bulls are praying the Fed will extend and pretend. Bears are hoping Powell will cop to a monumental policy mistake and immediate tapering.

Futures ramped higher overnight in typical pre-FOMC announcement fashion. Though ES has stalled at a backtest of the white channel, the bigger prize is a backtest of the broken yellow channel and the 10 and 50-day moving averages at 4424ish.