"take a right at the light, keep goin' straight until night, and they boy, you're on your own"

Well, the one thing that was NOT asked of Fed Chair was anything related to financial conditions. While Powell reiterated his belief that monetary policy is restrictive, and it is for anyone that has too much debt or a loan coming due that was priced pre 2022, and there are notable areas of weakness in the economy, what about the easy financial markets? Chair Powell, was there any discussion within the committee about the record high stock market trading at near a record multiple and the corresponding wealth effect? Or what about very tight credit spreads? Jay, any thoughts on the record high price of gold? What's that telling us? The Fed ALWAYS has had an asymmetric policy when it comes to financial markets. When conditions tighten up, they want to ease them. When they are easy, let em rip. 

What Powell did say that I thought he would was if he was going to cut by 50 bps, he would somewhat walk that back by saying their base case was a 25 bp cadence of cuts from here. And 50 bps would only be used again if the economy really needed it, aka, recession risks were rising. 

Also, this will be quite the threading of the needle. In the median economic forecasts, the Fed believes that they can cut interest rates about 200 bps from around 5.375% to a 3.25-3.5% by end of 2025 and that headline PCE will magically fall to 2.1% and to a core rate of 2.3%. If they think that raising rates is supposed to cool inflation, why do they think cutting by 200 bps will further cool them? That said, inflation will continue to calm in the coming months/quarters but we're setting ourselves up for a 1970's situation by the back half of 2025 when rents start to rise again, goods pricing likely higher from lower rates, and just as the Fed has gotten comfortable. I'm also bullish and long commodity stocks (said here before and weathering the pullback) believing global central banks are giving them a green light now. 

We know life is uncertain and forecasting it is tough, especially about the future, and certainly when it comes to the economy and markets but I have little feel, and I don't think the Federal Reserve/Jay Powell do themselves on how this all plays out from here in terms of the mix of economic activity, the labor market, where inflation sustainably levels out at and where they will eventual take the fed funds rate and its balance sheet. It is a true hall of mirrors. 

While I wasn't there Sunday night, but my son was, in Asbury Park to see Bruce Springsteen on the beach, he did play Blinded By the Light for the first time since 2017 and in the song Bruce "Asked him which was the way back home. He said take a right at the light, keep goin' straight until night, and then boy, you're on your own." I feel like that is the situation we're in now.