Dear Financial Friends,

‘Twas the week before Christmas, and all through the Fed, not a creature was stirring except Powell turning his head! The Fed pivoted like Scrooge on Christmas Eve, signaling rate cuts and making markets believe. Powell, in a twist of Grinchy cheer, said they won’t wait for inflation, but will cut in advance, spreading dovish vibes like a magical dance.

But, alas, enter John Williams (NY FED President), the Grinch in the crowd, trying to steal the market rally, talking so loud … “No cuts in March!” he exclaimed with might, crushing hopes and dreams of a festive rate cut night. He and his pals, Goolsbee (non-voting FED) and Mester (Cleveland FED Pres), echoed in sync, “The market’s wrong; don’t be fooled by the clink.”

The Dots plot chart was a spectacle to behold, with outliers galore, a story to be told. Some predicting no cuts, while one dreams of a feast, 150 basis points, a rate-cutting beast! Most, however, agree on a moderate slice, 50 to 100 points, to make things merry and nice.

As we await the PCE on Friday’s eve, the market’s nerves we must relieve. Expectations are high, yet hopes not too grand, for the headline to dip, and the core to stand. Rents are waltzing at 2.5%, a graceful delight, while shelter costs soared to a 6.5% height.

In this festive financial saga, as we navigate the rates and PCE drama, let’s hope for clarity, not Grinchy strife, and a prosperous end to our 2023 financial life!

Happy Festivus!


P.S. – thank you to Dr Seuss for all the books we’ve read to our kids over the years, tongue-twisting along the way, to inspire me for this week’s entry.

Fascinating chart below from our friends at MBS Highway depicting the ‘lag-adjusted’ core inflation number within CPI. The FED target has always been 2%, and lag-adjusted is now really close!