Holy Smokes, we've got a researcher calling out Jerome Powell as a wannabe and as somebody who uh, will never make it to the Grandeur of being known as the Paul volcker of uh of the world uh, economy and uh, essentially they, um, they don't seem to uh, trust that drum Powell is going to give us the medicine that we need and so this is a piece by Jeffries Mr Christopher wood over at Jeffrey's and I'm gonna go through some of the pieces here with you. I'll go through their intro and then I'll go through uh, their critical commentary and then of course I'll add my commentary. So let's get right into it. Washington Power plays aside.

So this is where they actually start by talking about a layl Brainard leaving. and the reason they touch on a Leo Brainard leaving is because she was one of she was your primary Dove at the Fed and now the sort of cheerleader of the doves is gone at the FED because she's going to the head of the Uh NEC the National Economic Council Uh, think about basically lail Brainerd replacing Larry Kudlow We're going to be shaped recovery. It's gonna be huge. a huge V and that was your Larry Kudlow Uh, it's a little Brainard is leaving.

She's essentially your pure Dove So now you have a fed that's positioned potentially more hawkishly. but uh, the Jeffrey's piece here makes a counter argument to the potential hawkishness of Uh of the Federal Reserve. So let's take a listen here. Power plays aside the departure of the leading Dove at the FED as well as the most articulate and economically literate.

one huge slam on everyone who's left at the Fed. By the way, Uh does raise a risk that greed and fear will prove to be too complacent on the current view here that it will be surprising. Greed and fear By the way, is this piece here. Uh, Anyway, the current view here that it will be surprising in the extreme: If the Fed does more than one rate hike Indeed, Money markets are now discounting another 65 basis points of rate hikes to 5.23 on the FED funds effective rate by July up from 4.89 on Feb one above the previous Peak terminal rate of 5.15 percent reached in early November And because Brainard the peak the dove is going away.

There's this Market belief that the FED is going to be more aggressive. So trying to translate this to English Basically they're saying, hey, look, we think the fed's not going to be capable of hiking any more than one time. They're actually kind of like the FED does is not going to have the balls to raise any more than one more time you'll get another 25 BP hike and then you're gonna get a pause in May That's what they believe Now By losing Braydard, they're sort of hedging a little bit and they're like, all right, maybe we'll get two more 25 BP hikes. but they're big, they're they're not Believers that the Fed's going to be able to pull off getting to about five percent and the first thing they do is they throw up this chart here showing average hourly earnings growth and they show how average hourly earnings growth is plummeting.

And and they suggest that this plummeting of average hourly earnings growth will actually Force the FED into a dovish posture faster. And keep in mind that's kind of what we've been seeing, right. You have companies like uh Tyson Foods saying they're good with labor availability. You have less signing bonuses going into health care, which we're not quite clear how that's going to show up in the in indices like employment cost indexes.

Whether they actually show up and show signing bonuses going away, which signing bonuses going away is essentially a wage reduction, right? Uh yeah. it's kind of like you get a first free month of rent when you rent a place at an inflated wage. It kind of makes it feel like rents are higher than they really are because you've been subsidized by. You know, if you get a free month of rent to 2400 bucks, that's like getting 200 off, right? So now your average rent should actually be twenty two hundred dollars, not twenty four.

But then it looks artificially High Because, but you've been subsidized that that sort of same thing in Reverse Uh, when you're signing bonuses, go away. Uh, and and so that's because you would get paid. you know, say, ten thousand dollars more per year. So your salary might be 100K as opposed to Uh 110.

With the bonus, you take the bonus away. your wage actually goes down. But does that actually get reflected because it might look like oh, 100K person is still making 100K Who knows Anyway, Uh, so so in other words, uh, myself? I'm seeing in the healthcare industry uh, as well as statistically, we're seeing less signing bonuses, less pressure, easier availability to find workers, more availability to find workers at Chipotle Starbucks entry level workers, so on, and so forth. So you're not actually seeing uh, you're seeing more labor availability at cloudflare and software Services more labor availability, and Uber and Lyft you're not seeing the wage price spiral that you were seeing in the 70s.

No leading indicator is suggesting that. So if you're making a short bet on the market, because you think there's going to be a Paul Volcker regime coming, you might be sorely disappointed. Anyway, continuing with the piece here, Brain Art has been articulating clearly The View that monetary policy works with a lag, but unfortunately, she's gone. uh, and uh.

now. right here you're saying, just let me read you this because it's hilarious in this context. on Brainard's departure, Powell may have more room to maneuver to play out his current wannabe Volcker act before he does the inevitable pivot. In other words, this, uh, this opinion Wall Street piece here is that Jerome Powell is trying to be a wannabe Paul Volcker, but in trying to be a Paul Volcker basically by trying to be a badass, he might end up going down as someone who didn't have the best reputation like an author Burns who ended up creating a massive Federal Reserve policy mistakes.

And so they're making the argument that Jerome Powell losing Brainard might make him temporarily seem like a more badass Volcker, but he's gonna end up being a loser and he's going to end up pivoting like the weenie baby they think he is. This is them. Okay, they're the ones being so aggressive about Powell I'll give you my opinion in just a moment they believe and it's their base case which remains. Then listen to this quote.

the Federal Reserve will be quick to Pivot the moment there is any evidence of real weakness in the overall labor market as opposed to the white color restructuring currently being witnessed. So as soon as you see basically the normal labor market as we already are with Uber Availability Lyft Availability Tyson Foods Hiring Availability entry-level Health Care Availability All of these positions are already seeing way. Way less pricing power for labor. which means wages are stabilizing.

There is no wage price spiral, and they believe that as soon as the FED realizes uh oh, we're actually starting to see those lags hit. and we're actually seeing wage weakness. The Fed's going to Pivot instantly and they're going to realize no wage price spiral. let's pivot.

Let's pause on rates. Let's start reducing weight rates. We don't actually want to see people get hurt because we have a dual mandate: stable prices and maximum employment Is the Dual mandate obviously right? Uh, and so of course, then they go into sort of the traditional argument here that don't worry at the same time as we see wage price pressure go away. We're going to see CPI plummet because of inflation and it's nearly.

you know, 50 contribution to inflation right now that's going to plummet and disappear. And so what? This what you're really going to see. This is their opinion and I'll give you mine in a moment. Their opinion is that you're going to see lagging data show basically 50 of inflationary pressures plummet because of Housing and the other 50 percent of the inflation missionary pressures because of wages.

As soon as there's any sign that they've hit weakness already. Which, between you and me, we already see the leading indicators of that weakness, you're going to see wage pressures plummet which will plummet Services Inflation. In other words, the FED is going to Pivot so fast that you're not going to want to price in too much more pain in 2023. That's their opinion.

I Don't know if I'm as bullish as they are, so I'll try to place myself on a scale here. So if I sort of had a scale and over here on the left you had like a bear and over here you had you know, the two hike. uh, the two hike bull dare I say two hike Bull and and pivot. I'm probably a little bit more like right here where I'm like a three to four hike bowl and the market will get through it.

It'll take a little longer to get to that sort of inflation, but that inflation is coming. it's just gonna take longer. So I agree with the higher for longer narrative, but I'm definitely leaning more on that bullish side. That's why I'm like, you know, all in, but I'm not in that place where I'm like yo.

Let's see YOLO call options, right? Uh, but I'm also not anywhere near this sort of bare bear site. but I think this is very interesting how they basically call them a weenie baby. and they say temporarily you might see more aggressive posturing, but in the long term, not a chance. That guy's get a flip-flop like the greatest weenie baby you've ever seen.

Nobody's ever seen a weenie baby like drum power when he pivots. Uh, so who knows, we'll see, but uh, that's uh, this person's thought, let me know what you think in the comments down below.