One of the weird and wonderful things about my wife Katie is that she is a hockey nut. Her grandfather coached hockey, her uncles both played in college, and while she lived in Russia many years ago, she followed the Red Army team.
To that end, being in Boston, she gets into some “discussions” over the best hockey player of all time with Bobby Orr being the hometown favorite. But her go to is absolutely Wayne Gretzky and she will quote his track records and stats all day long in defense (they are pretty remarkable).
And when I ask her “what one thing made Gretzky most special” she will quote something that Gretzky actually said himself “Skate where the puck is GOING to be, not where it is.”
But one thinks about this in terms of the FED, you would have to say they do exactly the opposite. Data dependent is just another way of saying that the Fed will always skate to where the puck is and not where it is going. This is exactly why the Fed will continue to get it wrong over time and will likely get it wrong here.
Any data point that emerges that might indicate that inflation is holding is met with “higher for longer”. But saying this is somewhat naïve because while they hold rates at a high level almost nothing else will remain in place and unintended consequences might occur.
The best example might be the real estate sector. Raising rates reduces demand for homes but also has caused a reduction in supply so prices have NOT fallen to this point. The Fed keeping rates at 0% saw an increase in debt on commercial properties that may need to be refinanced at much higher rates. This could put pressure on banks and their balance sheets and certainly the firms that own these buildings.
In recent weeks some of the consumer discretionary stocks have shown weakness and certain companies have lowered their annual guidance.
I am not saying that we are in for doom and gloom. What I am saying is that the puck is moving, and the Fed is not built to skate to where it is going so we have to pay attention.
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