“Powell Signals that US Rate of Inflation Will Not be Transitory” – Macro Tides WTR
For many months Chair Powell repeatedly told financial markets that “Inflation will be Transitory.” Investors wanted to believe Powell as it would delay any meaningful change in monetary policy. In testimony before Congress on September 28 and September 30, Chair Powell didn’t use the word transitory a single time. He did acknowledge that supply chain bottlenecks have gotten worse and that he didn’t know when they would ease. When asked if inflation was broader and more structural than earlier in the year, Mr. Powell said, “I think it’s fair to say that it is.” The supply-chain bottlenecks that have been driving prices higher “have not only not gotten better—they’ve actually gotten worse. The current inflation spike is really a consequence of supply constraints meeting very strong demand. It’s very difficult to say how big the effects will be in the meantime or how long they last.”
Chair Powell implied that the risk to the inflation forecast is that inflation could run hotter than expected but said inflation expectations were still stable. “We (FOMC) have this hypothesis that inflation is going to be transitory. We think that’s right. But we are concerned about underlying inflation expectations remaining stable, as they have so far.”
Look at this chart and tell me if you think inflation expectations are stable.
Powell’s reversal on how long inflation will persist has implications of how the Dollar, Gold,
Treasury yields, and stocks will trade. The rules of the game have changed. Are you ready?
Powell Signals That Inflation Will Not Be Transitory
Here’s an excerpt from the September 27 Weekly Technical Review
The S&P 500 and the Nasdaq 100 have declined below the intra-day lows they established on September 20. The S&P 500 and Nasdaq 100 were expected to rally for a few days and then fall below the low on September 20 of 4306. “Once this rally concludes the S&P 500 is expected to drop an equal decline of 240 points from the high of this rally to below 4306.” The S&P 500 rallied to 4465 and then dropped to 4379.
How more weakness can be expected?
If you would like my analysis on how markets are likely to trade, shoot me an email JimWelshMacro@gmail.com and I’ll send you the complete Weekly Technical Review for October 4.