The eyes of the financial world are fixed on Jackson Hole.
Central bank governors from around the world are joining Federal Reserve counterparts in a talkfest with only one topic for discussion – inflation.
The last Federal Reserve meeting took place a month ago. And the next one is three weeks away.
So, the market is desperate to hear from Fed chair Jerome Powell at Jackson Hole… to get even the slightest hint of how the Fed plans to tackle inflation from here.
The way I see it, a 0.5% increase next month will be the minimum. We can just about bank on a 0.75% rise.
And after that? I suspect there’ll be more rate rises to come and more increases than the market is expecting.
Clearly, a lot has changed from just a year ago. So today, let’s dig deeper into what we might learn from Jackson Hole this year…
A Crazy Year
When the same group met last year via Zoom, the Fed was still trying to convince itself that inflation was only “transitory.” They believed it would only be a matter of time before rising prices settled down!
But here we are just 12 months later, and the Fed is dealing with out of control inflation.
Although figures have eased slightly in this month’s Consumer Price Index (CPI), inflation is still running at 8.5%.
And it’s even worse when you consider the real cost of living… like filling up your tank, paying rent, or buying groceries.
While the headline number is bad enough, the underlying data shows food is up 11%, electricity is up 15%, and gas has risen a whopping 44% from just a year ago.
Even new vehicles have gone up by over 10%… if you can get your hands on one.
And as I wrote just two weeks ago, inflation is likely to bounce higher again. This latest inflation data came off a pullback in many of the major commodities.
Since then, commodities like oil, natural gas, corn, and other agricultural products have all rallied higher again… meaning next month’s CPI will likely show a higher number.
No matter how much folks might want to believe otherwise, inflation isn’t going away anytime soon.
There’s just no way the Fed can get inflation down from near 10% to 2% using interest rates… without tearing the economy to pieces and taking years to do it.
So What’s Next?
As soon as 2022 began, we had a dramatic selloff, followed by the counter-rally in March before the market sold off viciously again.
More recently, the market looked for any reason to bounce and rallied off June lows.
And within the past few weeks, expectations of the Fed going soft after this month’s CPI data spurred on the rally.
But with this recent peak and pullback again, the market is now stuck in no-man’s-land. And it’s desperately searching for direction.
That’s why all eyes are on Jackson Hole…
Even the slightest hint that the Fed might go easy on rates will be a catalyst for the market to resume its June rally and make a major move higher.
But whatever the Fed decides to do next month… inflation isn’t going away anytime soon and higher interest rates are here to stay.
Add that onto a slowing economy and that’ll put a cap on any move higher – even if the market wants to bury its head for now.
After such a tough start to the year, the market is looking for anything that might prolong this recent rally. And maybe Jackson Hole can provide it…
But make no mistake, tougher times are on the way.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
P.S. While the market waits for the Fed to hint its next move, inflation is eroding millions of Americans’ savings accounts and people are struggling. But if you followed my trading method earlier this year, you could’ve doubled your money multiple times.
That’s because my approach has nothing to do with the traditional “buy-and-hold” method.
Instead, I focus on trading just one stock at a time, and it’s helped my clients make millions of dollars, especially during market crashes.
Click here to find out how to potentially make all the money you need to achieve retirement – no matter what happens in the market or what the Fed does.
Reader Mailbag
In today’s mailbag, a One Ticker Trader member shares his trading experience…
Dear Mr. Benedict,
I’ve been trading options for three years and subscribe to at least 10 different option blogs. I had no interest in adding one more to my list. But my interest was piqued by the name, and I listened to your description of One Ticker Trader.
I’m impressed by your systematic approach to trading options and by your honest, clear, and comprehensive logic behind your strategy – to say nothing of the effort you expend on researching the best options.
I’m certain that I’m subscribing to the best subscriber guide to trading options out there.
– David R.
Thank you as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming at [email protected].