The Fed decided to hold rates in a passive stance during the FOMC meeting today, which marked the explicit confirmation that they are actively ignoring the inflation picture. This policy error is being underestimated by positioning and will continue to be downplayed by market participants.
The financial industry is structured to keep you invested in a 60/40 stock-bond portfolio. Narratives are carefully crafted to downplay the upside risks to inflation and the downside risks to growth. Why? Because if you believed inflation would rise and growth would fall, you would immediately exit the system and hold cash or even short bonds in order to benefit from the volatility. If you move into cash, the fees that go to the establishment decrease, and their relevance comes under scrutiny.
The financial establishment is not the only problem, though. Investors are just as much at fault as financial professionals. Investors hate thinking about risk and want massive returns handed to them on a silver platter without putting in any of the work that is required to achieve those returns.
If you think showing up gives you the right to success, you are making a bigger policy error than the Fed. There is no getting around actual risk-taking in life. You can give your money to an advisor or hedge fund and just pray and hope for the best, but hope isn’t a strategy. Many people want to trust others just because they can’t stand the idea of taking accountability in their own lives.
It doesn’t matter if you invest with a financial advisor, directly invest in a hedge fund, make private investments, or start your own business venture; the only person who is responsible for your returns is YOU.
The entire point of this is that when you look at the system, you need to remember that ALL of us are risk takers. We make decisions, we make errors, and if you expect everyone to always get it right, let he who is without sin throw the first stone.
The Fed makes policy errors just as much as hedge funds and traders (myself included) make errors. The difference is that policy errors by the Fed impact the entire global monetary system. Interest rates are the asymmetrical linchpin on which the entire financial system turns, and the supply of money is directly linked to interest rates.
(See the entire macro picture breakdown from my most recent video: link)
Kevin Warsh’s Misleading Statement:
So when we see Kevin Warsh make statements today that they want to get inflation down to 2%, that is what they are saying, but what are they actually doing? They paused today and made ZERO attempt to guide more hikes into the forward curve.
It doesn’t matter if Kevin Warsh believes in forward guidance or not. If the forward curve starts pricing FEWER hikes while inflation is rising, it does the OPPOSITE of their policy goal. Easing rates into rising inflation stimulates inflation and opens the gate of credit, allowing MORE money to flow into the economy from financial institutions.
The absence of forward guidance can create just as many policy errors as the presence of forward guidance.
Warsh says they want to get inflation down, but they are actively deciding to ignore clear inflation signals. The implication is clear: Actions are louder than words.
If they wanted inflation lower, they wouldn’t have paused today. There wasn’t a clear answer given for WHY they paused today. It was “just what they did so they could wait.”
Wait on what? Why aren’t the current signals significant enough to merit a hike?
Let’s just look at WHAT is happening in the economy right now and then connect it to the Macro Intelligence Pack (linked below).