Once Again Markets Prove They're Followers, Idiots, And Foolish Disciples Of Recency Bias.

I've said it before and I'll say it again: there's no demonstrable intelligence on Wall Street -- not now, not ever -- and the market's reaction to Powell's speech in Jackson Hole proved that without a doubt. Down went The Dow a thousand points, or three percent, when the fools on Wall Street were left holding the bag as their collective stupidity about The Fed first pausing and then cutting rates next year went straight out the window.

You could hardly call me a Powell fan. Up until now I felt he should have been fired not re-nominated by Biden for directly creating this inflation through money printing by digitization of currency which is always sooner or later massively inflationary. In fact, inflation is always, always, a monetary phenomenon as per The Maverick of Wall Street and of course, he's bang on.

Powell will keep raising rates for two reasons: first off, because it's his natural philosophical bent and secondly because he has to improve the odds of the boss not crashing and burning in 2024. Let's just call that the third mandate albeit unofficial of The Federal Reserve.

In addition, it's not inconceivable that Powell is also looking to his place in The Fed's history books. He knows he can't do a full-spread Volcker because that would destroy the American economy and very likely kill the dollar. 

Now for a bit of spit-balling: I think Powell and The Fed recognize that the United States, Canada and much of Europe are already in recession and he's hoping the effective use of his limited tools will keep that recession short and shallow. But I also think he recognizes that inflation can't be allowed to gallop ahead at double digits for long, especially given the fact that the true inflation rate is not 6% but more like between 15 and 20%.

So...expect Powell to actually walk the walk and do the talk at the same time. In his own words: 

“Restoring price stability will likely require maintaining a restrictive policy stance

for some time,” Powell said.

“The historical record cautions strongly against prematurely loosening

policy,” he added.

The Fed chairman also seemed to endorse “front-loading” rate hikes rather than delaying increases to avoid pain.

“History shows that the employment costs of bringing down inflation are likely to

increase with delay, as high inflation becomes more entrenched in wage and price setting,” Powell said.

So, buckle your seat belts cause it's going to be a bumpy ride. I feel sorry for the retail investor who like in all previous market downturns will be left there holding the bag as markets tank in 2022 anywhere between 20 and 80%. If Powell breaks the back of inflation it will be far less of an eventual market shock than otherwise might have been. That is, IF The Fed's policies ultimately do the trick. Maybe, maybe not.