By Graham Summers, MBA | Chief Market Strategist
Today is Fed day.
The market widely believes the Fed will cut rates today and then hint at a pause in January. The reality, however, is that the Fed might very well NOT cut rates today due to political pressure.
Why would the Fed NOT cut rates?
An inflationary rebound.
As noted on these pages and elsewhere, inflation continues to be a major problem in the U.S., no matter what mainstream economists claim. None of the three official inflation measures, the Consumer Price Index (CPI), Producers Price Index (PPI) and Personal Consumption Expenditures (PCE) are declining anymore. In fact, one could easily argue that on a year over year basis, the data has been flatlining or even turning up again!
CPI serves as a great example of what I’m writing about. No one looking at this chart would claim that inflation is gone. If anything, it looks as if it’s about to make a comeback!
This is not too surprising, the only part of the CPI that is down on a year over year basis is energy prices (well that and used cars). Take those data segments out of the CPI data and prices are still rising across the board!
See for yourself.
Put simply, all we need is for energy prices to rebound higher and the official inflation data will start coming in hotter than expected.
President Trump would pin that development 100% on the Fed.
Trump has made no secret of his disdain for the Fed in the last few months. At one point, Team Trump even went so far as to float the idea of President Trump removing current Fed Chair Jerome Powell before the latter’s term ends. Other ideas include the President having a say in the Fed’s interest rate decisions, and the Treasury taking over some of the Fed’s responsibilities concerning rates and QE.
In this context, the Fed needs to avoid any rebound in inflation, which likely means fewer rate cuts happening in the near future. And this would result in stocks collapsing.
Would that collapse mark the end of this bull market… or a garden variety correction that investors should use to “buy the dip”?
To find out, join 56,000 readers in over 56 countries in receiving our daily market alert every weekday before the markets open (9:30AM EST). We’ll be covering this development in great detail shortly…
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Best Regards
Graham Summers, MBA
Chief Market Strategist
Phoenix Capital Research
