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Is the Fed Back to Square 1 After Tuesday’s HOT CPI Inflation Data?

by | Sep 13, 2022

Get your popcorn ready, because the Consumer Price Index release is now Wall Street’s Super Bowl each month — appointment viewing, much like The Big Picture With Jeff & Roger each Tuesday!

Ahead of this data drop each month, it’s a good time to clean up our books and have cash ready to deploy… Because there are going to be trading opportunities on this day every month.

September’s data will be released at 8:30 a.m. EDT on Oct. 13, for those wondering at home…

The Big Picture With Jeff & Roger: Is the Fed Back to Square 1?

I’ve been saying for a while that the Federal Reserve isn’t going to be able to just snap its fingers and get rid of inflation, and the market is tanking after Tuesday’s data showed another uptick in inflation.

The August CPI showed headline inflation of 0.1% month over month while core inflation rose 0.6% — versus expectations of -0.1% and 0.3%, respectively. Inflation is up 8.3% year over year. 

The Fed made a grave mistake by keeping rates too low for too long, and by continuing to employ quantitative easing (bond buying) six months after we had 6% CPI prints. 

After last month’s downtick, people didn’t expect to see higher readings, and the market isn’t taking this news well at all. 

Here’s a daily chart of the SPDR S&P 500 ETF Trust (NYSEArca: SPY), which of course tracks the S&P 500. That massive red candle hit immediately after the August CPI data was released Tuesday morning, and the index continued to slide into lunchtime.

A stock chart of the S&P 500 (The Big Picture With Jeff & Roger)

By 3 o’clock on the East Coast, the Dow had shed 1,090 points while the S&P 500 was down 3.7%, and the Nasdaq a massive 4.5% — blood in the streets!

And here’s the kicker…

Gas prices have been falling for eight straight weeks, and the hope was that would help lower prices across the board. But it didn’t…

Food prices aren’t coming down… rent’s not coming down…

Now we have the potential for a 100-basis-point interest rate hike later this month. The chances of that happening are now way up to 22% versus a 78% chance for a 75-basis-point hike. 

FedWatch tool (The Big Picture With Jeff & Roger)

And we’re heading into a recession — if we’re not already there. So we have a major monetary problem on our hands, all created by the Fed, born out of a pandemic, which we’ve never really seen before in modern times. 

Like everyone else, I see rates going higher. But stocks are getting crushed like rates are about to hit 17%. 

So how far is the Fed willing to go to stomp it out. 

Check out The Big Picture With Jeff & Roger up above, and let’s discuss. We’ll also cover some trade ideas and important levels to watch — because we are approaching oversold levels where the Nasdaq is starting to look interesting. 

Are there any topics you’d like to see me cover or questions you’d like answered? Send me an email at jeff@joyofthetrade.com! And be sure to stay ahead of the markets by subscribing to our YouTube channel and our Instagram page for all of the latest!

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WRITTEN BY<br>Jeff Zananiri

Jeff Zananiri

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