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Equities Rally, But Fed Isn’t Pushing Pivot, Says Equities Rally

1/5 CPI came in below expectations. Equities rallying hard, believing in Fed pivot.

Problem is looser financial conditions now —> more Fed tightening —> worse ultimate economic/market outcome.

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@PauloMacro @hkuppy @JulianMI2 @UrbanKaoboy @42macroDDale

2/5 Headline CPI at 7.7% is still ~4x the Fed’s target of 2%. Yes, I know Fed watches Core PCE but Headline CPI is politically relevant given public doesn’t know what Core PCE is.

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@PauloMacro @hkuppy @JulianMI2 @UrbanKaoboy @42macroDDale

3/5 And Powell just told you at Nov FOMC press conference that Fed isn’t even considering pivot. He made it clear he’s much more worried about consequences of pivoting too soon vs too late.

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@PauloMacro @hkuppy @JulianMI2 @UrbanKaoboy @42macroDDale

4/5 After CPI print, we’re seeing equities up, dollar down, & bond yields down. That’s loosening of financial conditions. Fed needs tighter financial conditions to get inflation under control.

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@PauloMacro @hkuppy @JulianMI2 @UrbanKaoboy @42macroDDale

5/5 I’ll repeat what I’ve said before—longer equities hang in there, the higher the ultimate Fed Funds rate.

The higher the ultimate Fed Funds, the worse the ultimate economic/market outcome.

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@PauloMacro @hkuppy @JulianMI2 @UrbanKaoboy @42macroDDale

This post is based on this twitter thread.

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