Powell Confirms US Economic Pain is OK?

US stocks were significantly higher on a mix of company reports and positive Retail Sales data, but mostly due to a very powerful ‘head and shoulders’ basing price formation in the US500 index. Resulting in pretty much every technical analysts and trader buying US stocks on the day. 

Give this another 24 hours, and virtually all of the short term trading market will be holding long positions. 

Nothing wrong with that, as long as the real money selling of the super hedge funds do not look to take advantage? Which, to be honest, this is what I think will happen. Another 24 to 48 hours of firm price action, followed by resumption of the major overall down-trend that has been in place all year.

US Fed Chairman Jerome Powell made the somewhat surprising statement that he accepts there will be some economic pain. As he continues to aggressively hike rates back toward and even above a neutral level. 

Many economists, including myself, believe that the new neutral setting for the Fed Funds Rate is most likely to be around the 3.25% mark. The Chairman has said he will do what it takes to combat inflation, even if it means economic pain.
The market was a little buoyed by the idea that inflation will be dealt with. 

Though this view completely under estimates the impact of economic pain for already struggling American families. More importantly, it misses the point that raising interest rates against supply driven inflation so late in the game, is almost pointless in relation to that inflation. If there are supply shortages, prices will go up regardless of whatever level interest rates are at. 

Though a return toward more neutral settings is long overdue and must be undertaken, being consistently aggressive in the fight against inflation takes the Federal Reserve into the realm oi adding significantly, even explosively, to the burden already waged against the consumer by the already pre-existing and chronic inflationary pressures. 

There would appear little hope of the consumer and small businesses coping with both extreme inflation and increasing mortgage and loan stress, at the same time.

USA recession here we come.

Article attributed: Market commentary from Clifford Bennett, chief economist at ACY Securities 

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