Presented by Doug Noland
Daily Commentary
Monday, December 26, 2022
[Yahoo/Bloomberg] Stocks Rise, Currencies Mixed in Cautious Trading: Markets Wrap
[AP] Extreme cold, travel chaos: Woes from deadly storm continue
[Reuters] U.S. retail sales grows 7.6% in holiday season -Mastercard data
[MSN/LAT] In Arizona, Colorado River crisis stokes worry over growth and groundwater depletion
[AP] Packed ICUs, crowded crematoriums: COVID roils Chinese towns
[Reuters] China’s COVID cases overwhelm hospitals
[Yahoo/Bloomberg] China’s Economy Is Showing Increasing Strain From the Covid Tsunami
[Reuters] Beijing, Shanghai residents back to work as China limps towards living with COVID
[Reuters] BOJ Kuroda dismisses near-term chance of exiting easy policy
[Reuters] Ukrainian drone hits bomber base inside Russia
[AP] S. Korea launches jets, fires shots after North flies drones
[Reuters] South Korea scrambles jets as North Korea sends drones over border
[AP] China sends 71 warplanes, 7 ships toward Taiwan in 24 hours
[Reuters] Taiwan reports China’s largest incursion yet to air defence zone
[Bloomberg] BOJ’s Kuroda Emphasizes December Policy Tweaks Are Not Exit
[WSJ] Wall Street and Fed Flopped in Trying to Predict 2022
[FT] China launches military drills around Taiwan after US passes defence act
[FT] Leading ECB policymaker hints at sharp climb to peak rates
[FT] Cyber attacks set to become ‘uninsurable’, says Zurich chief
Weekly Commentary
December 16, 2022: Credit Downturn Acceleration
Interesting week. The FOMC statement and “dot plot” were viewed as somewhat more hawkish than expected. In his press conference, it was a solid “Balanced Powell” performance.
Powell stuck with his now familiar hawkish points. “We have more work to do.” “Where we’re missing is on the inflation side. And we’re missing by a lot.” “We do see a very, very strong labor market, one where we haven’t seen much softening; where job growth is very high; where wages are very high.” “I would say it’s our judgment today that we’re not at a sufficiently restrictive level yet…”
He has, however, definitely toned it down – now pulling some punches. Questioned about his previous warning of pain from the Fed’s inflation fight, Powell deflected: “So the largest amount of pain would come from a failure to raise rates high enough and from us allowing inflation becoming entrenched in the economy.”
“Balanced Powell:” “We’re restrictive, and I think we’re getting close to the level we think sufficiently restrictive.” But one of the more interesting exchanges was Powell responding to whether the Fed might re-evaluate and adjust its 2% inflation target.
Powell: “Changing our inflation goal is not something we’re thinking about, and it’s something we’re not going to think about… I think this isn’t the time to be thinking about that. I mean, there may be a longer-term project at some point.”
“Longer-term project”? Commentators on Bloomberg were quick to question why the Chair would today even broach the subject of adjusting the target. “Balanced Powell.”
FT headline: “‘Emphasize the Pain’: Jay Powell Keeps Hawkish Tone Even as Inflation Eases.” Most pundits and analysts saw the FOMC and Fed as more hawkish. Curiously, however, two-year Treasury yields declined a couple basis points during Powell’s press conference to end the session slightly lower.
For the week, two-year Treasury yields dropped a notable 17 basis points to a more than two-month low 4.18% (down from Nov. 7 high of 4.72%). Bloomberg: “Bond Traders Dismiss Fed’s Hawkish Tone, Bet on 2023 Rate Cuts.” (more…)
