Difficult

The Fed left rates unchanged as expected, and in the press conference, Powell categorized the current economic environment as “difficult”, but with a resilient labor market. He mentioned that Inflation remains somewhat elevated and isn’t coming down as much or as quickly as hoped. Those comments came on the back of the PPI report, yesterday morning, where Producers prices spiked to 3.5%, and excluding food and energy, 3.9%, as you can see in the bottom chart, below. The key point is that the PPI report does not take into account the effects of the Iran conflict that started on Feb 28th. That will be fully reflected in the March report. But the FOMC committee members voted knowing that number, and knowing that oil is above $100. And that’s what you see in the upper chart below. The famous dot plot, where each dot is a voting member of the FOMC. At first look, the chart tells you there will be no meaningful rate cuts for the foreseeable future, which sent equity indices down, treasury yields up, and the dollar index strengthened, which sent precious metals down. The conflict in Iran is bringing more headaches than anticipated, and Trump has isolated the US from Europe and other allies. It’s becoming uncomfortably long and expensive, and its justification, at the end of its third week, is weakening by the day. It looks like Trump has two options: retreat and cut the loses or double down and hit harder. What do you think he will do?

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