Hedge Fund CIO: Only Thing Worse Than Pausing Prematurely Is Having A Fed Chair Who Lacks Decisiveness And Determination

By Eric Peters, CIO of One River Asset Management

“Chair Powell, what’s the value in pausing and signaling future hikes versus just hiking now?” asked Nick Timiraos from the WSJ. “I mean, not to be flippant, but I don’t lose weight just by buying a gym membership; I have to actually go to the gym,” continued the reporter, as his colleagues in the press corps looked on in awe, praying to someday engineer such a perfect question, delivered so casually, beautifully. “Sixteen of your colleagues put down a higher year-end ’23 rate today. A majority of you think you’re going to have to go up by 50 basis points this year. So why not just rip off the Band-Aid and raise rates today?”

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“We’re two-and-a-half years into this or two-and-a-quarter years into this,” said the Fed Chairman at his press conference, leaving interest rates unchanged at 5.00-5.25%, below the latest 5.3% annual core CPI. “And forecasters, including Fed forecasters, have consistently thought that inflation was about to turn down, and, you know, typically forecasted that it would, and been wrong,” continued Powell.

 

In a hyper-financialized world where money can be created and extinguished with the click of a mouse, no one fully understands inflation, let alone can accurately forecast it.

“I think if you look at core PCE inflation overall, look at it over the last six months, you’re just not seeing a lot of progress. It’s running over 4.5%, far above our target, and not really moving down,” he said. “We want to see it moving down decisively, that’s all. We are, of course, going to get inflation down to 2% over time,” declared Powell, doing his best to sound confident.

Because of course, the only thing more inflationary than having a central bank which has paused with inflation more than double its target, is having a Fed Chairman who appears to lack decisiveness and determination.

“We want to do that with the minimum damage we can to the economy, of course. But we have to get inflation down to 2%, and we will. And we just don’t see that yet,” he said, desperate to engineer a soft landing, which of course is what all Fed Chairs must first attempt, elusive as such outcomes are.

“As anyone can see, not a single person on the committee wrote down a rate cut this year nor do I think it is at all likely to be appropriate, if you think about it. Inflation has not really moved down. It has not so far reacted much to our – to our existing rate hikes and so we’re going to have to keep at it.”