The Fed is in listening mode. It will be patient.
That's exactly what's necessary to sustain the expansion and not end the cycle and I applaud Fed Chief Jay Powell for wanting to be more flexible than he has been.
That's so important after the fiasco that was this morning's CNBC interview with Cleveland Fed President Mester who did that same two-faced dance: we are data dependent and we need one or two rate hikes.
How can you be data dependent and have made up your mind that you need one to two rate hikes to get back to normal?
I will tell you what normal is. Normal is where the data says you should go. Normal is the natural progression of jobs being created without a lot of inflation. Normal is not a percent. It is not 3%. It is not 3.5%.
That's the old fashioned way to look at it and things have really changed. Every device you have is designed to lay people off. Every software program you have is designed to have fewer people because people are so expensive. Every invention of any note is about making sure that if 10 people are doing something that only two people will end up doing it and doing it better.
Why does the Fed not understand the economy we are in. It's pretty simple if wages are too high and the banks don't want to lend then we are going to have too many people unemployed. This morning's number says there are still enough jobs to entice people back into the labor force with just about 3% wage inflation.
How terrific is that? How celebratory is that? We want the Fed to take a bow and now be patient and wait and see what the last rate hike brings because, other than health care which, unfortunately, has the worst part of inflation embedded in it. I don't see the need for more people to be hired in a host of other industries that have historically created jobs: retail, restaurants, hospitality, travel, leisure, home building, manufacturing, auto assembly, boxes, plastics, plywood, insulation, oil rigs, pipeline, you name it. I think the fear is that the Fed may have already been too tight, not that there is some sort of normal now in a world where central bankers are trying to inflate economies and pretty much failing.
I know my stance with China is already enough to slow any economy. You don't get weakness in the entire tech complex and the industrial complex if you are just considering American demand - heck Apple (AAPL) had fabulous numbers. You do get weakness if you look at what COULD happen if China doesn't' play ball.
And domestic? Let's pick a bank. Why not pick KeyCorp (KEY) , after all it is based in Cleveland, where Mester rules. How did it do last quarter? It had $1.602 billion in revs. How did it do the previous quarter? It had $1.647 billion in revs. How did it do in lending? It had $44,749, 000 in commercial and industrial loans. How about the previous quarter? That was $45,030,000.
Last I looked the past was better than the present. No wonder the stock has fallen from $20.5 on the day Powell declared war on inflation to $13 on the Christmas massacre. Fortunately it has bounced back to $15 and change but that decline, despite a huge boost in the dividend, is what makes me worried about NOT waiting and NOT being patient.
Oh boy would I love to ask Mester or Powell about those numbers. What would they say?
Memo to Powell: keep listening, be patient, and enjoy the employment gains. They are welcome news, especially with low inflation.
Let's keep it going by waiting a little and not being judgmental about rate hikes like Mester was.
It could be halcyon days for the working person. That's what a good Fed should be all about.