Powell has it Backwards
Powell’s speech today illustrates why he is in the bind that he finds himself. He has been looking at the inflation problem as a short-term problem, we all have heard the infamous “transitory issue” phrase.
Where he has missed the point is in the fact that this is a long-term inflation wave that has its roots in the 1980’s Supply Side economic programs, which failed miserably in 2000 and 2008 and led to the also infamous Bernanke QE2, and then Trump and Powell added the final bottle of juice in 2000-2022.
Trying to solve this long-term problem with short term interest rate hikes is wrong. The inverting yield curve is going to provide more excitement in the markets than what Powell has anticipated.
The following table is from stockcharts.com…
What it basically says is that an inverted yield curve may be bad for GDP but historically it is bullish for stocks. This is at a time when a majority of investors and traders are leaning defensively.
So watch the markets closely here, we may be on the verge of a massive up move as the defensive lean will get rolled over.