Bill Fleckenstein says that the Fed’s recent tough talk is just that - talk. They really do want to stop raising rates:
Which brings me to this question: Given that attitude, why is it only now that the Fed has suddenly awoken to the reality of inflation — considering that inflation has been raging for the better part of a year and has been too high for a couple of years?
My answer: The Fed’s “manliness” (or credibility) has been challenged, and too many people have been laughing at it. Fed members don’t like that, but they desperately want to stop hiking rates. Thus, in an attempt to win back confidence, the Fed has to talk a tough game … to be able to do what it really wants to do, which is pause. If you want to back off, talk is cheap — but necessary. So, I’m not at all surprised to hear the rhetoric ratchet up.
And where is the market headed, once the Fed finally is done?
As for how and when the stock market capitalizes on the Fed-is-done idea, the upside that it tried to muster (until last Monday) was pretty unimpressive. What happens when the Fed actually is done will be a function of how low stocks have traded beforehand.
Maybe the bulls will be able to put together a better (albeit seriously failing) bounce. But except for the near-term squiggles, I firmly believe that the resumption of the bear market is under way. The path of least resistance now, in my opinion, is going to be down, and future surprises are all likely to be negative as the bear market picks up speed.