Market Message to Warsh: You Have No Marbles!

Despite some hawkish Fed Minutes released earlier this afternoon from the July FOMC, markets seem to be of the mindset that Kevin Warsh and his Committee need to actually demonstrate their concerns about inflation by actually hiking rates at the September FOMC, rather than merely paying it lip service. 

On the updated odds of a hike in September, via the CME FedWatch website, below, you can see there is only about a one in three chance of a hike. Note that these odds are significantly lower for the September FOMC than where they were just a few weeks back. 

Again, this type of response by markets, or lack thereof, drives home the point that The Fed will need to regain the market's respect in its inflation fight after more than five years of seeing the annual inflation rate substantially above The Fed's own 2% target. And, let's be honest, after years of former Fed Chair Jerome Powell acquiescing to markets every step of the way, the market is practically begging to be clubbed over the head in order to force itself to take inflation more seriously. 

In addition, we had the Treasury Secretary announce what amounts to a soft form of Yield Curve Control this morning, whereby the long end of the curve is in focus as Scott Bessent seeks to keep long bond rates under control.

On this news, TLT is indeed bouncing today. But so is gold. Any form of Yield Curve Control is a serious step for politicians to embrace, and is an extremely slippery slope. 

As for equities, semis are lagging again. And, yet, there is virtually no fear surrounding this ongoing underperformance. Ultimately, bulls are counting on a Treasury hell-bent on playing whack-a-mole with any asset class coming under pressure via stepping in to provide support, coupled with a new Fed Chair who may be all bark and no bite.

But the issue may very well come down to whether markets decide to take matters in their own hands this autumn.