Over-Mythologizing the Fed

'Will it or won't it' is the Fed question du jour… again.

Later this month the Fed will be back to playing interest rate roulette, deciding whether to hold steady or lob in another increase.

It seems like almost everybody is betting on an increase, followed by maybe another. Of course, everybody has been wrong before.

I was thinking about this the other day after reading an essay on LinkedIn by Jon Hilsenrath titled, “Why I’m Bullish.”

Jon’s not just another guy spouting off....

As the former economics editor of the Wall Street Journal, who also used to follow the Fed, he has better insight than most. Plus he has no axe to grind, other than the kind of interpretation that comes from years reporting, writing and editing. He also wrote the book, Yellen: The Trailblazing Economist Who Navigated an Era of Upheaval. And he happens to be a nice guy. (Full disclosure: He edited a bunch of my columns when they appeared in the Journal. Poor guy drew the short straw!)

On this issue of what the Fed does next…

Jon’s view is that next week’s report of the Consumer Price Index is likely to show that inflation fell into the low 3% range last month. If he's right, he believes it means the Fed is closer to reaching its goal than it is prepared to admit. The good news, in that case, is that it might be in?a position to stop raising rates sooner than the market expects.

The bad news… it very well might overdo it. Or as Jon explained in his essay...

Federal Reserve officials keep telling investors they expect to raise short-term interest rates two more times this year to ensure they’ve killed inflation. They might not need to, and that’s why stocks are rising.?

And if you’re wondering, he’s still bullish after today’s jobs report that suggest the job market is slowing but not contracting.

Of course, in this “follow the bouncing ball” deluge of economic data, that follow’s yesterday’s report that showed just the opposite for private employers. Jon to me this morning, before he he published a?follow-up …

Rising wages are GOOD as long as inflation cools. It bugs me when people say it's bad that wages are rising. It is a good thing in its own right, as long as inflation isn't going up, and right now inflation is clearly slowing. Rising wages?might be a sign that worker productivity is rising.

Never mind about whether we are, were or will soon be in a recession. We’ve supposedly been on the verge of one for more than a year.

Who knows… maybe the WSJ's Justin Lahart had it right when he dubbed it a "richcession."

That might help explain why a trip I recently returned from on a high-end cruise line, with capacity of 600 people, wasn't entirely full – and that's even with 140 passengers (as I later learned) who had been deeply discounted.

That group included more than a few who would have never likely gone on this kind of ship... and likely would never return at full price. (The guy complaining loudly that there weren't any buffets at dinner was the dead giveaway. That's not something you'll generally find, at dinner, on this kind of ship.)

More telling was that the trips immediately before and after ours were roughly half full.

Which gets me back to what Jon wrote...

After reading his piece we went back and forth in the comments section. What he said there could easily have been the core of another essay, especially his comments on the Fed… (To read the rest of this article for free, please click here .)

DISCLAIMER: This is solely my opinion based on my observations and interpretations of events, based on published facts, and should not be construed as investment advice.

(I write two investment newsletters for Empire Financial Research, Empire Real Wealth and Herb Greenberg’s Quant-X System. For more information, click?here? and?here .)

Feel free to contact me at [email protected]. You can follow me on Twitter and Threads @herbgreenberg.??