Editor's Note: Below is a note written by Hedgeye editor Eric Wallerstein and junior Macro analyst Ryan Ricci.

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Powell, Take A Hike - powellcommons

The FOMC meets today, with their rate decision & expectations, and Powell's presser, set for 2:00pm ET and 2:30pm ET tomorrow (1/25), respectively.

Surely Powell is excited... on one hand the market is pricing in 4 hikes this year, and on the other, underlying economic fundamentals are deteriorating substantially.


Fed fund futures have a hike at the March FOMC meeting pretty much locked in, with 4 hikes through 2022 as the modal outcome. 

Powell, Take A Hike - fff1.25.22use

Street qualitative outlooks are even more hawkish:

  • Jamie Dimon expectations are set at roughly 7 hikes
  • Goldman sees risks of more than 4 cuts
  • Wells has the Fed hiking every quarter through Q3 2023 and full on Balance Sheet tapering starting at the March meeting... really setting themselves up for a freezing cold take.

The market is taking the Fed at their word; no more punch because inflation is high, such economic prowess.

Despite inflation running way hotter than their 2% target for over a year and a half, now is apparently the time to raise rates; just as inflation peaks and rolls, economic growth decelerates on a Rate of Change basis, the labor market weakens, and supply & demand imbalances persist.  

Economic Fundamentals 

There's been a range of (bad) economic prints over the past few weeks which we'll highlight below. Notably, the IMF cut their U.S. economic growth forecasts to 4% this morning, down -1.2% from the previous 5.2% forecast.

Not that the IMF are known to be the best forecasters in the world, but the massive downward revision is meaningful. That's not exactly an environment you want to be hiking into. 

Recent economic data:

  • Jobless claims jumped up to +286K last Thursday, far above consensus expectations at +200K and the prior week's +231K
    •  That's good for the highest reading since October 15, 2021.
  • Empire State Manufacturing Survey fell into contractionary territory in January, down to -0.70, versus December's +31.9
  • December US Retail Sales fell sequentially to -3.1% month-over-month, and to +12.9% year-over-year (down from +13.3%)
  • Purchasing Managers' Indexes (PMIs), an indicator of economic health, fell to their lowest levels in over a year
    • Manufacturing PMI had their worst print in 15 months, dropping -2.7 points to +55.0
    • Services PMI fell -6.7 points to 50.9, its lowest in 18 months and nearing contractionary territory

Bottom line: Economic growth is on the decline, and last time we checked that's not when you want to tighten monetary policy.

We'll see what the Fed signals tomorrow at the conclusion of their January meeting, but a March Rate Hike seems baked in the cake. If Four Hikes sounds like a tall order, that's because it is. 

Markets surely wouldn't like that... meaning the Fed and elected officials surely wouldn't like that either.