The Federal Reserve has just released some more concerning opinions about what the heck is happening and has happened over the last few weeks. These concerning opinions are ones that we're going to evaluate against. Uh oh, what is the data actually saying? Is January's data really that bad? And why is the Federal Reserve All of a sudden getting a little squeamish? Well, let's take a look at the press release from the Federal Reserve outlining exactly their latest thoughts. Now, what's important here is to know that this press release hot off the press from Christopher Waller who is obviously a member of the Board of Governors of the Federal Reserve was released in text instead of via a zoom call because apparently somebody got on the Federal Reserve Zoom call and started showing porn and after that was displayed.

The Federal Reserve said that Waller's event has been canceled due to technical difficulties. So anyway, uh, you know I guess they were trying to analyze. you know, BP and pricing power, you know? But anyway, Um, so we have it in the written form. So last month we received a barrage of data that has challenged my view in January Mr Waller His view in January has been challenged in January.

His view was that we were making significant progress in moderating economic activity and reducing inflation. I'm not the only one whose Outlook has shifted since the end of January Financial Market Participants have revised their outlooks in a way that led them to mark up their expectations for the Federal Funds rate at the end of 2023 by about half a percentage. Point Okay, so that's that 5.1 percent terminal rate that we got. The data started to shift with a bang in February and part of our plan is to lower inflation by reducing tightness in the labor market.

But unfortunately the labor reports like the Jolts Report which can be noisy. That's actually important to see because them saying these reports in January noisy is somewhat of a way to kind of downplay the January numbers. But anyway, even though there's a noisy data that comes out in January, we have to be careful not to downplay large moves and then jobs. Numbers that we got in in February for January were scary.

and instead of getting a box of chocolates on Valentine's Day yes, Chris Waller literally said that we ended up getting C API reports that were high, suggesting that inflation was running hotter than we thought at the second half of last year, a Pce report a few weeks later that came in hot, and retail sales and spending data that suggested progress on reducing demand may have stalled. This is all bad news from the FED here. Like bears are going to eat this up. The last thing you want is the Federal Reserve going.

Progress is starting to stall. That's bad. Any fear that we might face a two-sided risk in achieving our dual mandate was blown away by the January numbers says Chris Wallers Waller What does that mean? Well, what it means is the Federal Reserve has frequently been told, hey, if you go too far, you'll unnecessarily unnecessarily create a deep, dark recession. And what? Chris Waller here is saying is any fear that we're going too far Got blown away by the January Numbers, so in other words, we can keep going without that Two-sided risk.

Wages are growing faster than they have in decades at a pace that may contribute to inflation continuing to be elevated. We've seen excess pressure in the fast growth of services pricing and the Phyton bring inflation down to our two percent. Target will be slower and longer than many had expected, even just a month or two ago. That's bearish.

That suggests rates higher for longer I Mean we kind of already know that the terminal Fed funds rate right now being priced in is like 5.42 You're not pricing in any Cuts anymore. Not only are you not pricing in any Cuts anymore for 2023, but it looks like you're probably not looking at Cuts until 2024. That's the higher for longer, right? Great, Fantastic. What else? I Don't want to brush aside the fact that we have made progress in reducing inflation and there are indications of further Improvement coming.

The three-month inflation rate is running below the 12-month rate, which highlights progress and there are reasons to be optimistic about continued Improvement including a sharp deceleration of rents affected coming in the next few months here. However, if consumer spending isn't slowing and labor markets are unsustainably hot, then progress could have stalled. So there are two scenarios: The FED is saying either progress stalled or the January data was just a blip. Seasonal adjustments, a blip, something that's going to go away, and we're going to end up seeing the resumption of a decline in inflation going forward.

And ultimately, we hope that the February data shows that we're just facing a bump in the road, but that might end up being wishful thinking. We might have to go higher for longer because we can't risk a Revival in inflation. That's the Federal Reserve's latest take as of yesterday, which again, that latest take was delayed a little bit because somebody showed porn on the Federal Reserve's live stream. So what says the market? Well, the market has some opinions on this, and uh, the market actually responds with uh, well, at least this one company responds with this and suggests, hey, is the January data really as good as it looks? In other words, is it really as hot as it looks? And what they say is that if we look at all of the data on a four-month annualized basis.

So basically you take four months between September and January and then you annualize it. Which means you multiply it by three. It's not exponents. don't use exponents.

Damn it. Annualize means multiplied. I Have that fight all the time. Anyway, the measurement shows that there's still solid growth, though it's nowhere near the growth that you saw in January.

So here's a piece that suggests maybe you don't need to be as worried. Look for example, here, when you look at the uh, the January data alone, the month over month data suggests really, really bad data. Because if you annualize this, you're sitting at 10 to 12 on some of the data. or even more, right? So, the January data was very, very bad.

But if you look at the September to January data on an annualized basis, retail sales yeah, up 5.6 and real personal consumption expenditures, which is inflation adjusted, are only up two and a half percent. This is actually much more normalized than a line, and actually falling from the 2.8 percent for real Pce that we saw in 2022 as a whole. And they say here as a conclusion, we're not trying to suggest that January's data was bad by any means. it was very strong.

However, we are more skeptical that the economy has seen a substantial renewed acceleration that will be sustained moving forward. So in other words, here's an here's an institution that says I don't know. It's likely that the January data was probably just a blip, and maybe we don't have to be as worried about that January data. Now, we did get data on March 1st that suggested potentially stagflation, right? We got manufacturing data that suggested less orders and higher prices, which that's not fantastic.

that's not what we want to see. And so there are real concerns that oh no, the inflationary impetus could continue. and that's actually where why might the inflationary impetus continue? Well, potentially because of exported inflation from Europe See, inflation in the Eurozone itself is not cooling, right? We've seen a substantial increase in inflation and a very, very tight labor market with a risk of a wage price spiral in Europe Which if you have a wage price spiral in Europe, you're probably going to export more wage inflation to America And that's bad as potentially. And this sounds crazy, but you hire American workers who potentially are more available to do certain jobs or prices rise for European goods and services.

Which leads to more Uh inflation broadly for the for the world really. But you know what else is leading to high inflation in Europe Well, quite frankly, it's the strikes that are happening in Europe. It's not just Germany uh, facing labor strikes, but it's also labor strikes and protests in France that are leading to strikes. Uh, you've You've got massive Uh, you know.

here's sort of a history of some of unions and the strikes that you see in France. Uh. But really, what you're finding is walkouts of rail unions. You're finding strikes amongst a German uh airport staff.

You're actually seeing in my opinion, so much contention between labor unions not just in Europe or France but also in the United Kingdom that you're inducing so much more inflation in Europe via wage inflatio and Supply interruptions. You're actually making a situations worse. Think about it: if you strike and you create Supply disruptions you increase the cost of providing Supply Whether that's for goods or services, if you increase the cost of providing Supply you're reducing profit margins at businesses more. Which actually means businesses have less capacity to pay higher wages in the first place.

So in a weird way, the crazy strikes that are happening in Germany in France or London are actually making inflation worse for Europe. Now fortunately, we have less of that issue in America, but you still have a Federal Reserve That's saying I Don't know Man, If that January data doesn't turn out to be a blip, rates are going to go up even higher, and while some folks say you know, it'll probably end up being a blip, there are plenty of reasons to say that maybe what's going on in Europe could end up starting to affect what's happening here. And we do end up with a revisitation of more inflation, which would obviously be very, very bad. And this is why we have to write down the very important catalyst: March 10th CPI Uh sorry March 10th uh.

Labor Report 5 30 A.m March 14th CPI Report 5 30 A.m I'll be covering those Pacific Standard time And then of course March 22nd when the Federal Reserve Reams Us at 11 A.M Pacific We'll pay close attention to those. but really, you've got a Fed right now. That's like eh. let's see what the next data sets are.

You've got leading indicators in America that are saying they shouldn't be bad jobs. availability is substantially expanding Uber Lyft Chipotle I Don't want to go through the list again I Feel I could do it every single day, but wage availability, labor availability is substantially expanding. You still have some shoots of potential pain in Europe a lot of that potentially being caused by striking in Europe right now, and some of that could end up exporting to America which would be bad, but we do expect substantial wage and rent disinflation to really help us anchor inflation down, and hopefully we'll see yields plummet, which will save the real estate market for more certain pain we'll see right now. It seems like some things are slowing down though.

Yields tend to be very, very volatile, so we'll pay attention to this. But this gives you an example of what the Federal Reserve is thinking and how labor strikes in Europe could also affect inflation. We'll see in my opinion. Bottom line: all of this is very consistent with a Nike Swoosh recovery.

It's very volatile. This is the kind of noise ways you would expect, but the the direction is very, very clear in my opinion and that's why I'm a big fan of 90 to potentially 100 in not more because you don't really want to be on margin. 90 to 100 in not personalized Financial Advice: 90 to 100 in on pricing power stocks. Stay away from the collapse potentially from Staples in the S P exposure.

Focus on pricing power stocks My day. Now some folks were asking me, hey, what about Mr Bostick suggesting hey, maybe we could pause at the FED Of course of course he's saying that, but he's also very very clearly saying, look, it's all going to be based on the data. All Bostic is doing is saying look, if the data is great, maybe we're closer to being able to pause. Maybe January was just a blip if the data comes in bad.

No pause yet. of course, at some point the FED is going to pause I Don't think that's really the big Catalyst I Think when when the FED pauses, we're already going to have clear and convincing evidence that inflation is not running away anymore. Like the pause will be too late for real. Euphoria I think I Think the inflation data will provide the Euphoria and then the FED will just follow that.