Robert Stark

Dec 21, 2023

Fed Chair, Jerome Powell, is considering a pause in rate hikes, and then three rate cuts in 2024. In response to talks of a pivot, the Dow soared to near all-time highs, with overall market sentiment hyper bullish. However, yesterday stocks plummeted like last week never happened. We are still hearing the same propaganda about a soft landing, with the Fed achieving that goldilocks zone, where inflation is defeated without unemployment rising. The Bears assumed that there would be this epiphany moment, where they would be vindicated and the Bulls would see the light, but so far that has not happened.

Source: financialjuice Twitter

These rate cuts are not set in stone, and Fed speakers are already starting to backtrack on the pivot message. For instance, the New York Fed’s, John Williams, stated that “We aren’t really talking about rate cuts right now,” after Powell said that “Rate cuts are a topic of discussion right now.” Regardless, the pivot does not vindicate the bulls’ soft landing thesis. Rather it is a signal that the Fed is throwing in the towel on fighting inflation, and is worried that higher interest rates will cause something to break in the financial system. The Fed anticipating the lagging effect of rate hikes are the real reason for the pause. Not to mention how big the bubble is, and how invested the Fed is in preventing it from popping.

Source: GeorgeGammon Twitter

We are witnessing a repeat of the 1970s, where the Fed pivoted prematurely and inflation resurged. While inflation is relatively low for now, core inflation is still at 4%. The decline in inflation is a sign of a global economic slowdown, especially in China and Europe. Inflation also went down because of supply chain issues getting resolved from the pandemic and Ukraine war, as well as Biden depleting the Strategic Petroleum Reserves, which now have to be replenished. Mass migration has hidden the cost of inflation while growing the GDP, but at the expense of harming overall quality of life.

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