Powell’s Inflation Battle – by Justin Vaughn

(Justin Vaughn, Editor, Options Trading Report)

It Did Happen…Jerome Powell unleashed another bit of tightening…a 0.75 percentage-point interest-rate increase on Wednesday, surprising no one, as even the sharpest economists predicted. He was quick to indicate that ‘more increases’ might be needed, and would come monthly. Investors and traders alike appeared to accept the news in stride sending the markets higher and welcoming the ‘help’ as a step in the only direction possible in controlling inflation. The S&P 500 jumped 2.6%, and the Nasdaq Composite was up a blistering 4.1%, it biggest rise in 2 years. As expected rates on the 10-year Treasury fell to 2.731%. “It is a bit surprising that all assets reacted in such an exuberant manner,” said Michael de Pass, a global head of linear rates trading at Citadel Securities. The housing market, a major target of easy money has and is showing signs of cooling. Home prices are still up, but home sales are falling as interest rates rise. “I think events of the last few months have raised the degree of difficulty, created great challenges,” Powell said. He added that the labor market will need to be better balanced. “And there’s a much bigger chance now that it will depend on factors that we don’t control.” The Fed’s strong tightening commitment reaffirms its position and dedication to control inflation. That signal to investors gives confidence and clarity, as the indices displayed. Powell is determined to hit the 2% inflation rate, the ‘holy’ number he speaks of.

Consumers and Inflation…The Cost of Living in America Today. U.S. consumers are ‘bearing the brunt’ of extremely high inflation in every aspect of their budgets. Across the board increases have rocked and shocked the consumers, from coffee to autos. Prices have increased at an unbelievable rate affecting every family. Grocery costs are soaring, with almost monthly increases as raw production costs and supply chain costs kick in. After numbers of 8.6% and 9.1% for May and June, the shell-shocked consumer needs help in the ‘pocketbook,’ as basic living costs are soaring out of control. Even the most basic vacations via automobile are now so costly with gas hovering in the $4.50 to $5.00 range, forcing many younger consumers to cancel road trips and any activity by car. Everything is pricier, as interest rates have climbed and dulled housing starts, stalled business expansion, buying autos, impeding the consumer on any major purchase. Today’s economic equation is unlike any this country has experienced in the past, as many suspect a recession could emerge.

A Bit on Bitcoin…This time bitcoin is facing an impediment never before seen, the major tightening to restrain and stop inflation forcing thousands of cryptocurrencies into their final chapter, flushing many weaklings out sending the survivors struggling. Cryptocurrencies have never had to deal with government tightening, have never been subjected to forces of inflation, with many believing cryptocurrencies are a hedge, like gold, as a haven of security in unsure times. Far from a hedge, crypto is a speculation, and cannot be compared with the likes of gold, that has withstood the test of time.


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Mike Bell, global market strategist at JPMorgan Asset Management, WSJ “If we don’t get any signal of consumer retrenchment, maybe it’s not as bad as people fear, but if we do get that it’s a signal recession risk is materializing.”

Luca Paolini, Chief Strategist at Picket Asset Management, WSJ “If the corporate sector starts to cut back on investment spending, that to me is the nail in the coffin,” she said.

Randall W. Forsyth, Writer: UP & DOWN WALL STREET, Barron’s “With the Fed still tightening and seasonal trends turning negative, good news from positive earnings presents investors with the opportunity to reduce risk. And bad news may cease to be good news for all the markets.”

Adrian Helfert, Portfolio Manager, Westwood Income Opportunity, Barron’s “Unless we see market stabilization and appreciation, I think it’s unlikely that we’re going to have eight hikes more this year,” says Helfert, who expects 6 more.

Michael Hartnett, BofA Investment strategist, on signs that stock-fund outflows haven’t matched investor pessimism, Barron’s “Everyone is bearish but no one has sold.”