Can the Fed Control Inflation with Higher Rates?

June 15, 2022

Mish's Daily

By Mish Schneider


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Written by Mish

So, the whole U.S. watched the Fed raise rates by .75 bps today.

And, with all the news coverage and analysis, yours truly has tried to warn you all that whether the Fed raised by 50 or 75 bps, it does not matter.

Equities underperformed commodities from 1999 to 2009

This was followed by an 11.8-year streak of outperformance by stocks due to QE and low rates.

Now, for the last 2.2 years, commodities are outperforming.

Will this last for ten years?

The S&P 500 is now in a bear market for the first time since the pandemic-induced drop in 2020. The Fed raised for a third straight time.

Regardless, two increases in the previous two Fed sessions had little influence on rising energy and food costs, and today's hike will almost certainly have little effect other than potentially in the housing market.

What do we have?

The knee jerk reaction of the stock market was to rally. And so did gold, silver, copper and pretty much everything except for oil and energy.

Government officials, except for maybe Janet Yellen, may not want to admit it, but global macro data all points to global Stagflation.

Several days ago, the World Bank slashed global growth forecasts and warned of 1970s-style stagflation.

If oil supply and demand fall for now, that complacency it will foster among investors that inflation has peaked, and the Fed is doing its job could be dangerous.

We expect food commodities (and energy) to continue to lead inflation higher.

We believe that today’s rally in equities might be met with further selling very soon once the market realizes that the Fed cannot go far enough. They raise more, the threat of recession (although it is really stagflation) ensues. They do not raise enough, and inflation goes on for perhaps the next 3-8 years.

Regardless, watch our dear Granny Retail XRT. The immediate indicator on where consumers go from here.

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Mish in the Media

6/15 Fox with Neil Cavuto

Check out this week’s article on inflation for CMC Markets

6/14 Stockcharts TV Final Bar David Keller

6/14 Chart School with Charles Payne Fox Business

Mish on the Money Show. What Is the Modern Economic Family Telling Us?

Also-

Jared Blikre and Mish sit down to discuss her history, investing and the future.

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ETF Summary

S&P 500 (SPY) 380 resistance 374 pivotal support 360 major support

Russell 2000 (IWM) 168.90 May low 175-177 big resistance

Dow (DIA) 306.28 pivotal support then 294

Nasdaq (QQQ) 290 resistance 275 big support must hold

KRE (Regional Banks) 56 the 200 WMA 60 resistance

SMH (Semiconductors) 195 some minor support with 220 resistance

IYT (Transportation) 211.87 the 200-WMA resistance 218

IBB (Biotechnology) 105.39 support110 resistance

XRT (Retail) 60.62 the important 200-WMA support line 65 point to clear

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