Quick Note on The Fed

There'll be no rate hike announced after today's Fed meeting, so it's all about the statement and the press conference.

As I've expressed herein of late, while the Fed has to sound tough on inflation, the short-term nature of the problem is largely (there are other factors) about passing-through-higher-prices-to-the-consumer due to a supply shock (read oil), or perhaps the risk of a further supply shock that's presently priced into everything petrol.

So, at first blush, one would think that a hawkish Warsh would be bullish for the dollar, net-bearish for equities, as well as precious metals and other commodities.

Notice I didn't say net-bearish for bonds... Not that it won't be, likely may, but, frankly, it perhaps shouldn't be... Meaning, an aggressive Fed looking to tighten financial conditions into a supply shock is uber-dangerous from a broader economic perspective... Which, all else equal, could very well have investors bidding up (yields down) the long-end of the yield curve out of fear that the Fed will live up to its historical rep as the ultimate expansion killer.

Now, that said, our longer-term position remains that -- while indeed there may be yet another hike or two on the near-term horizon -- the structural playbook is to suppress at least the short-end of the curve (where the treasury will be doing the bulk of its borrowing) and to inflate the economy's way out of the daunting headline debt/GDP ratio over multiple years going forward.

Let's face it, fiscal restraint is in no way whatsoever on the cards, whoever wins in 2028!

As for next week’s midterms, a split Washington is the likeliest outcome, and gridlock cuts both ways: no new stimulus, but no austerity either... The deficit is on autopilot (entitlements plus a rising interest bill), so nothing coming out of Congress changes the math... Expect debt-ceiling and funding brinkmanship in 2027 instead.