Let's Pretend Jay Powell is Sitting at Your Poker Table

While I am fully aware we have META earnings tonight, followed by AAPL AMZN GOOGL tomorrow evening, then the jobs report Friday morning, not to mention the next CPI print on Valentine's Day before February monthly options expiration which should finally see a plethora of hedges rolled off, it is still instructive to take a step back and analyze the Fed Chair's mindset before the FOMC later today. 

In other words, I am not going to pretend that the FOMC is the ultimate moment for this market, particularly with Powell so keen on transparency. Specifically, he has done noting to refute the expectation the Fed will raise by a mere 25 bps. If he raises 50 or even 75 (highly unlikely) then I am sure the market would experience a shock. 

However, the more likely path is a 25 bps hike followed by firmly hawkish rhetoric at his presser, with perhaps some language indicating a more stringent QT program to remove liquidity from the system. 

But, then again, the market likely has anticipated this already, which undermines the hawkish rhetoric in and of itself. Indeed, being able to "surprise" the market was a tactic used by both Volcker and Greenspan successfully.

Inversely, the last few Fed Chairs have opted for transparency, which my work well during periods of deflation and/or disinflation but is already sputtering during inflation where markets run free to loosen financial conditions liberally like they have thus far in 2023. 

Hence, when we examine Powell the man, we see a wealthy, successful, powerful individual who has already achieved historical status with books written about him due to the pandemic "heroic" measures (which, of course, is debatable). 

But he has also had his pride and backbone challenged by Wall Street, referred to as "blinky" by various trading desks for not being tough enough to ultimately fight inflation off fully, on top of the market rallying right in his face, commodities like gasoline too. The counter argument is that Powell is a hack and simply enabling some type of globalist agenda to keep inflation high and destroy the middle class. If that is true, then all bets are off for America, anyway. 

I am not prepared to go with the latter argument yet. I believe Powell's pride matters to him now more than ever, especially considering he has already attained wealth, status, historical fame, etc.. He has noted he did not want to, essentially, be remembered in the way Arthur Burns was, which leads me to believe we have a 25 bps rate hike coming today but also a bit more hawkish rhetoric than the market expect--Perhaps Powell outright says no rate cuts in 2023? 

Either way, I still expect the market to look like a much different beast by the end of this month, as many indications of a frothy bear market rally remain.