Tuesday's Markets Update (January 10, 2023)

11 Jan 2023 by rate3

After Bostic's set back a day before, Powell's 'stick to our knitting' speech in Stockholm came almost unnoticed by markets on Tuesday, Jan 10. NASDAQ went up by 1.2 percent (from 10607 to 10742) and BTC increased by about one percent (open: 17246, close: 17432). This bullish reaction was mostly technical and went astray of all fundamentals, including, National Federation of Independent Businesses (NFIB) reporting business owners optimism index dropping to 10-years low (89.8).

Actually, NFIB index is one of the less followed macro-indicators and has almost zero influence on trading. The reason I mentioned it is to underline, once again, how disconnected is the present FED policy from the real economy. As Powell, himself, noted in Stockholm: "(FED can not) wander off to pursue perceived social benefits that are not tightly linked to our statutory goals and authorities".

Only those 'authorities' might be too voluntaristic and those 'goals' might be completely misplaced. Fundamental, long-term changes of the global macro-conditions are taking place. Among other things it stipulates rising production costs all over the world and leads us to new the 'inflationary normal'.

Moreover, it suggests that bringing inflation back to the targeted 2 percent is absolutely impossible without getting the economy into the deep recession. Even then, recovering from that recession will not happen without drastically dropping the rate, again, and, consequently, getting the inflation back where it was (and even higher). That sucks us into the Powell's Wormhole, when one poor decision leads to another one, then, to another one and so on.

Powell said that "Price stability is the bedrock of a healthy economy and provides the public with immeasurable benefits over time." He is right. However, what he forgot to mention is that "a healthy economy" is the growing one, where impulses for innovations are not irretrievably damaged (or, even, destroyed) by the dogmatic and incoherent 'monetary policy'.