Powell is still easing, more so after the last FOMC meeting via /r/wallstreetbets #stocks #wallstreetbets #investing


Powell is still easing, more so after the last FOMC meeting

I have a thesis for why the market is going up after the FOMC meeting and I would like to initiate a discussion regarding the same.

Tightening means the value of cash should go up, since the value of any fiat currency is determined by how many folks want to stay in cash compared to investing in assets or spending it all away. Increasing the value of cash hence should involve providing higher returns for deferred cash or debt that beats inflation. I have heard a few people say interest rates should match up to the inflation rates, which I feel is false. To truly tame inflation the Fed needs to provide an estimate of inflation and then give cash holders returns that beat inflation. This means when you get 0.6% Core PCE inflation rise MoM, you need to say that you are going to raise inflation 7.4% rates to incentivize folks to move to cash or spend less. Anything lesser is incentivizing spending.

In the press conference after FOMC meeting, unlike previous press meets the Fed has dropped inflation projections. This means that the Fed has admitted that they have no estimate of the inflation or how high it might go. Meanwhile they raised the rates by 0.75% this implies they are assuming the inflation has to come down to nearly 0% total over the next 12 months. The market participants saw that the possibility of this happening is very low and is trying to get rid of their cash by buying assets.

If my thesis is correct, this means that the stock market is going to see another rip your face off rally next. And this is not a short covering but just a significant move up. But unlike other rallies the volume will be decidedly lower as only a few stocks will rally this time especially the stocks that will profit from the destruction of the value of cash.

This is an opinion that I would like a discussion on and I welcome views opposing mine.

Submitted August 02, 2022 at 04:20AM by esteppan89
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