For many years, in its statement the Fed insisted that monetary policy was NOT on a preset course but would instead be data dependent. At the moment, however, monetary policy IS on a preset course. The Fed will raise 50 basis points in June and July and then reevaluate in September. The CPI report Friday morning is the highlight of the week but won’t affect this structure.
My contention is that stocks have priced in this preset course and will hold up fairly well into the September meeting. That’s why I’ve covered all my tech shorts and added tech exposure at the margin. That doesn’t mean you can just set your portfolio on autopilot as unexpected things always occur, but until they do this is the positioning that makes sense to me for the next few months.
On a related note, The Wall Street Journal’s Greg Ip has written the article of the week in today’s paper (“Powell, Not Biden, Has Last Word On Inflation” [SUBSCRIPTION REQUIRED], Thursday 6/9): “Mr. Powell’s critical junctures still lie ahead: Like Mr. Volcker, he might need several years, and a recession, to defeat inflation”.
The big question you need to answer as an investor: Is Powell Volcker 2.0? Here’s what I wrote six weeks ago on this topic: “Short term pain, long term gain. Volcker could take the pressure and stay the course. Can Powell?”