Contents:

1. The Case for “Skipping” Hikes
2. The Case Against Skipping
3. The Economy is Too Strong
4. Stop Buying Houses
5. Inflation is Not Dead at All
6. The Fed Needs You Fired
7. China Recovery Key to Fed Success

Summary

Authored by Goldfix, ZH Edit

The title above says it all. The Fed wants you to know they may not hike rates in June and maybe not even in July either. But they do not want you to call it a “pause”. To call it that implies hikes may be permanently put on hold. They wish to call it a skipped hike. In this way they convey there will almost definitely be a continuation of the rate hike regime as programmed soon.

Fed word-smithing implies: Either you believe they mean what they say and are trying to telegraph this to us, or you believe they are done hiking and are trying to remain tough looking. This is irrespective of the Fed actually being right in their assessments, which is not a given anymore, or ever…

 

The Case for “Skipping” Hikes

Two Federal Reserve governors, in line with Fed Chair Jerome Powell's previous statements, expressed their support for skipping one rate hike in June rather than simply pausing rate hikes. This is likely an attempt by the Fed mainstream to convince their more hawkish members to capitulate and get dovish.

Nomura:

Two Fed governors stressed that they favored skipping one rate hike, not pausing rate hikes, in June, echoing Fed Chair Jerome Powell’s statement on 19 May. The Fed mainstream apparently intends to convince the hawks with this logic.

It suggests that the majority of members anticipates ongoing negative factors for the economy with lessening inflation and intends to pause rate hikes, as they would not skip a rate hike in June if they expected to resume hikes in July1.

Following the SVB crisis, most of the Fed staff had adopted a scenario where the US economy enters a recession in the second half of this year. Then on May 11th, Jamie Dimon pulled the plug on JPM willingly buying more banks:

Dimon said he won’t make another purchase. “No, I doubt it,” he told Bloomberg. 'It's a lot of work' .

Taken together we see a White Knight banker saying No Mas; goods inflation receding; and even more indicators signalling recession. These are supportive of the Fed pausing— errr.. we mean skipping—for multiple months.

The Case Against “Skipping”

"So how do we get services inflation to drop? The same way they get houses to drop in prices. They want us to stop buying houses. Which means, we all have to get fired."

There are two simple reasons the Fed should not skip a hike: The economy is still too strong, and inflation is not dead at all. First Nomura’s June 1 statement (report at bottom)

It is doubtful that the economy and inflation will fade as predicted, and this author expects inflation expectations and rate hike expectations to rise again ahead of the July meeting if the Fed skips a rate hike in June.

Let’s break that down a little.

The Economy is Still Too Strong

Stocks are rallying as rates are rising; Historically a bubble indicator.

Nomura observes:

As demonstrated by the recent AI stock rally, companies’ potential interest in capital investment is thought to be strong, and the residential sector, which should be sensitive to rates, is currently even recovering (yesterday, Fed Governor Michelle Bowman expressed concern about this).

Housing demand also tells you we do not have a contraction of credit in the private sector. Housing is extremely important as an economic leading indicator. Therefore, despite a Fed policy implemented specifically to create an economic downturn, we have not gotten one. The US credit environment hasn't tightened.