Has The Federal Reserve De-iced Inflation From Its 40-year Lull?

Michele Schneider

Before takeoff, when the thermometer shows sub-freezing temperatures, the airlines send out de-icing equipment.

The fluid is a chemical mixture that is heated and then sprayed to remove ice and snow on an aircraft.

However, it has a limited ability to prevent more ice from forming.

I love this analogy for current market conditions and particularly for Federal Reserve Chairman Jerome Powell’s comments today about the future of interest rates and inflation.

We already know there is a disconnect between the Federal Reserve’s metrics for inflation and reality.

In fact, the Federal Reserve speaks mainly to investors, as most folks – statistically 61% of those polled – do not think the stock market has any impact on their financial well-being.

Even more interesting is that 40% of those polled did not even know the market has gone to new highs.

Disconnect? You betcha.

My takeaway is that first, I wish more folks were aware of the market and how to make money in it. 

Secondly, Powell said, “In order to move rates up, I would wanna see… a significant move up in inflation that’s also persistent.”  

With inflation already a factor for those who buy things like food, healthcare, clothes, etc., Powell’s comments contradict the notion that most (61%) think the market does not impact their wealth.

Even if the Dow Jones Industrial Average (and broader stock market) does not, inflation and the falling dollar definitely will.

Yet, we are traders and want to make money in any market condition.

Furthermore, MarketGauge educates both the novice and experienced investors. I particularly hope to teach those who feel disconnected from Wall Street.

If the Federal Reserve has de-iced inflation from its 40-year lull, what do we do for 2020?

Recently, I did an interview on Real Vision.

I covered several strategies.

The silver to gold ratio was one. Although we had one humongous move in silver in July, since then it has sat dormant.

One more push higher in silver, and I can officially call a bottom. We just need a little more patience.

I also covered the economic Modern Family. As usual, I talked about the need for the “inside” factors-Retail XRT, Small Caps IYT and Transportation IYT to partipate.

As Semiconductors soared to another new all time high, the “inside” measures did little.

In a Daily from last week I wrote, “For my money, I will be watching IYT to either get through 195 and alleviate the tension, or break below 188.25 and send an ominous signal to his brethren.”

To prepare for stagflation, watching the metals and the dollar make sense.

I also talked about sugar futures as a well-kept secretive way to see how inflation may pick up and for how long.

Right now, sugar futures awoke from a base. Trading at its highest levels since July, sugar has the potential to blast off from here.

In that case, consumers will surely feel the inflation pinch as sugar is the cheap “high” most reach for, especially during holidays and when things are tough.

So yes, the Fed is trying to de-ice with its comments about the moderate growth in the economy and the desire to see higher inflation.

But, like the airlines, the Fed has limited ability to prevent further ice or “inflation” from forming. 

S&P 500 (SPY) 313 or the 10 day moving average is price support, while 315.48 is the all time highs.

Russell 2000 (IWM) 161.10 is price support, with 162 being pivotal. 163.41 is the high to clear.

Dow (DIA) Inside day. The 10 day moving average is price support, while 281.91 is the all time highs.

Nasdaq (QQQ) 203.87 or the 10 day moving average is price support, while 206.05 is all time highs.

KRE (Regional Banks) 56.00 is pivotal while 57.52 is major price resistance.

SMH (Semiconductors) 132.82 or the 10 day moving average is price support, while 136.54 is the new all time highs.

IYT (Transportation) Inside day. 188.25 is key price support. If it fails, it will impact everything. Price resistance at 192.40 then 195.

IBB (Biotechnology) 116.30 is key support with 122.97 the 2018 high.

XRT (Retail) 44.15 is price support while 45.41 is resistance to clear.

Twitter: @marketminute

The author may have a position in the mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

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