Hey There Income Hunter,

 

Neel Kashkari, the Minneapolis Fed president, gave a speech yesterday and he was the most hawkish any Fed governor has been to date …

 

Check out these sound bites … my comments in italics …

 

• • FED’S KASHKARI: WE MUST REDUCE INFLATION IMMEDIATELY.
  • THE FED HAS CONSIDERED YIELD-CURVE CONTROL, BUT THE BENEFITS DO NOT APPEAR TO EXCEED THE DRAWBACKS. … This most interesting. They are trying to remove any ideas of the Fed going back to QE.
  • THE REAL YIELD CURVE HAS NOT REVERSED Here he is saying they need to get the Fed rate above inflation. Right now the Fed rate is 2.5% and inflation is 8.5% … Good luck with that.

There is more and I honestly believe they are preparing the market for an even more hawkish approach to their tightening policy …

Today, I’ll share what I think we will hear from Powell next week and how to stack some profits from it.

Moving the Needle

 

Kashkari moved the needle on Fed Sept. 21 rate hike.

 

Notice that once the Fed governors start speaking, the number of Sept rate hikes increased to 2.5, meaning the odds of a .75% hike is now 50/50 …

 

 

I think Powell will hike by .75% unless we get significantly weaker news in the next couple of weeks. 

 

I mean, the about-face in the markets over the past few weeks has been historic. The slight hawkish tone from Powell at the July meeting caused a complete melt up. 

 

The amazing thing is the higher stock prices themselves reversed the financial conditions index to showing easing conditions. The index literally went from the tightest financial conditions in the past two years to the loosest in one month. 

 

 

You know that did not make Powell happy. I am sure he was cursing the administration for bringing two spending bills and celebrating the end of inflation after one lower CPI print …

 

Check out these two other comments from Kashkari … 

 

• DOMESTIC FACTORS, ESPECIALLY FISCAL POLICY, ARE LIKELY TO ACCOUNT FOR 1/3 OF INFLATION. That is the Fed throwing the administration under the bus … 

• IF THE UNITED STATES EXCEEDED ITS DEBT CAPACITY, LONG-TERM INTEREST RATES AND INFLATION FORECASTS WOULD BE SIGNIFICANTLY HIGHER.  Here he is addressing the narrative that says the Fed will have to Pivot to QE or they will become insolvent. 

As always with Fed you have to read between the lines and understand Fed googly goop … 

The bottom line is the message being sent is …

• We can withstand higher interest rates because our debt levels are not a problem.

• We are not going to yield curve control, so don’t build in even higher inflation

• We will raise the Funds rate until it is above inflation and leave it there.

Bring It Home

Not one of those statements is true.

The Fed has responded this way many times in the past. 

It is similar to Bernanke saying on CNBC right in front of the stock exchange in 2007 that the housing market was strong and still very affordable. 

We all know what happened then. It is very possible either next Thursday or Friday when Powell speaks at the Jackson Hole economic symposium he may amplify Kahskari’s message …

They need to squash the stock market and I believe they will. Powell does not want to be known as the guy that could not do his job. 

I believe their goal is to cause a pretty deep recession and a serious downturn in housing. 

Stay tuned for a few suggestions on how to set up for next week and as always …

Live and Trade With Passion My Friend,

Griff