Will the Fed trigger the big one at 1.00%+ after their September meeting? The July 27th Powell "Put" is holding, yet markets have mispriced a U.S. deflationary recession. Stagflation could already be here, with is a massive build up of supply issues dating back to 2019. Calamity ahead.
While traders await the outcome of the Federal Reserve 'Jackson Hole' meeting, which is so far been read as hawkish, stocks have held above the July 27th Powell 'Put' when the Fed chief placed a line under stock markets by offering ambiguity and dismissive aspects in his speech of economic calamity. That, if inflation is left to run, could well and truly end up passing 10% in one would factoring in climate change and energy/food issues pretraining to supply shortages which begun way before Covid-19 hit the world in 2020.
But, it is more than likely that the Fed will hit the big one in September for a 1.00% or 1.25% to a possible 1.75% to bring the cash rate up to 3.75% to which they can sit on till their Nov meeting and lift rats by 0.25% brining the overall rate to 4%. Inflation has most likely been imbedded into the global economy, at the slow rate rises that Central Banks have committed too. And in their quickness to cut rates, they've offered a snails pace in raising them.
Chart 1 above show the U.S. interest rate at 2.50%, below pane and the S&P 500 still supported above the 4189 resistance and the 3968 Powell 'Put' with the 3933 support (red line) yet to be breached. The blue line overlaid is the 10 yr-breakeven rate (which Fed officials will be watching very carefully).
Chart 2 is my prediction of a 5% drop on the S&P 500, sitting above the 3933 (Powell's 'Put'), pertaining to the fact that the markets are mispricing a U.S. recession (deflation) that early signs of stagflation is already here, which could be a larger inflationary hit on production in the months to come.
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