As we kickoff an election year, there is still a huge concern regarding inflation because it is virtually the only thing people around the world are concerned about. Yes, there are wars, but watch the rants from the vast majority of people who are suffering and they are pissed off about the high prices of everything. This was the exact same trend in the 1970s.

Inflation Still A Huge Concern As Fed Is Now Trapped
January 3 (King World News) – Peter Boockvar:  The noteworthy fact of the November 1st FOMC meeting was the Fed basically saying (with comments in speeches prior on this) that the market had tightened for them with the sharp rise in long rates and thus gave them license to pause. Well, with the notable easing of financial conditions since and into the December 13th meeting, stoked in part by the Fed itself, they said in the minutes from that meeting that “Many participants remarked that an easing in financial conditions beyond what is appropriate could make it more difficult for the Committee to reach its inflation goal.”

The minutes also said that while their “baseline projections implied that a lower target range for the federal funds rate would be appropriate by the end of 2024”, the “participants also noted, however, that their outlooks were associated with an unusually elevated degree of uncertainty and that it was possible that the economy could evolve in a manner that would make further increases in the target range appropriate.” Meant to keep us on our toes in terms of balancing the markets desire for a lot of rate cuts and the Fed’s interest right now in just a few.

Also, implicitly hammering home the message that while rates might get cut this year, the fed funds futures market is not in sync with their thinking, they said further “Several also observed that circumstances might warrant keeping the target range at its current value for longer than they currently anticipated.” ‘Several’ ain’t ‘few.’

And they “reaffirmed that it would be appropriate for policy to remain at a restrictive stance for some time until inflation was clearly moving down sustainably toward the Committee’s objective.” I bolded the word ‘sustainably’ because it is one I keep highlighting as most important to the Fed.

Bottom Line
Bottom line, it is a cheer that inflation is slowing but I’ll say AGAIN that the question for inflation and rates at this point is not the cyclical downturn we’re currently experiencing after the spike we saw, it is where it SUSTAINABLY settles out at. By reading these minutes, the Fed is not in a rush to respond with many rate cuts to the cyclical drop in inflation, that historically follows a spike, until it is much more confident it can be sustained.

If the Fed meant to tighten the expectations between themselves and the market, it didn’t do much as the December fed funds futures yield is up just 3.5 bps to 3.965%, still priced for about 6 rate cuts, albeit a touch less so.

JUST RELEASED: Major 2024 Surprises & Predictions!
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Gold & Silver In 2024
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