The Fed picks up the towel, commits to the inflation fight. Says to the market that it isn't going to be pretty, 4% sell off across the board. Europe's energy crisis will spill over globally i.e. Electricity prices will spike.

 

Federal Reserve Chief Jerome Powell has picked up the towel and indicated, after the Jackson Hole meeting, to the markets that he will be delivering further, if not larger, future rate hikes.   As discussed in this post, probably to drive rates to 4% maybe even up to 5%, the Personal Consumption Expenditures (PCE) came in on the same day as the Powell speech.  Dropping year-over-year at 6.3% from 6.8% the market expected a rise of 7.8% but obviously had not factored in what the Strategic Petroleum Release (SPR) did to the oil price and prices at the pump, refer to Dallas Fed summarized report of July's PCE:

"After July’s sharp decrease, the price index for gasoline is likely to show a similarly sharp decline when PCE data for August are released. Weekly retail price data from the Department of Energy (DOE) show gasoline prices on track for a roughly 11.6 percent decrease in August before seasonal adjustment."

But oil and energy are volatile components to the index, particularly when the U.K. and Europe are now entering into a severe energy inflation crisis, the Biden admiration may have a difficult time to shielding the American economy from rising electricity/energy costs associated with rising Natural gas prices.  As the Northern Hemisphere enters into the colder months.   The Fed is aware of this, by increasing rates the U.S. Dollar will go super bid, offering reprieve to consumers ala energy and food prices, yet rates will take out Wall Street bullish speculation and crimp the housing market.  It isn't going to be pretty, but inflation will do more damage than if it is allowed run. Say, if you working in inflationary conditions, your wage will start to drop into negative territory.  You ask for a wage increase, the boss says ok, but puts up prices (to cover wages, overheads, emerge costs) that goods and services of the business offer.  This negative feed back loop has no end but to hyperinflation, where money eventually becomes worthless.

Anyway, the above chart show the S&P 500 futures, with the 4% sell off after Powell revealed that the Fed are going to be harsh on inflation, my prediction for a further 5% drop in the coming days, which will sit the index slightly above the Powell 'Put' at 3970.   The market overall is now vulnerable to 'other' shocks.