Markets have misinterpreted the most recent statements from the Fed – and its likely the central bank will push rates past 4%, former New York Fed president says

New York Empire State factory gauge plunges in August deep into contraction territory

General conditions index drops 42 points to negative 31.3 — the second largest decline on record

• Inflation at 2% target needed for months to be sure, he says
• Richmond Fed leader cites research work of Marvin Goodfriend

Federal Reserve Bank of Richmond President Thomas Barkin said the central bank needs to keep raising interest rates until it’s clear inflation is running at its 2% target even if the economy weakens to avoid a policy mistake similar to the 1970s. “I’d like to see a period of sustained inflation under control,” Barkin said in an interview on CNBC Friday. “Until we do that, I think we are going to just have to continue to move rates into restrictive territory.”  While Fed officials view 2.5% as a neutral rate — the level that neither speeds up nor slows down the economy — Barkin said there’s uncertainty about the level and his goal was to have interest rates higher than expected inflation, or positive real rates. Barkin is the latest Fed official to call for continued rate increases even as he said the latest inflation data were encouraging.   Increases in consumer prices slowed to an 8.5% year-over-year pace last month, a report showed Wednesday, from 9.1% in June, which was a four-decade high. A separate report Thursday showed that producer prices fell in July from the month prior, the first drop in more than than two years. “I want to see real rates across the curve sustained in positive territory,” he said. “I think we are on the brink of moving real rates into positive territory across the curve. We need to sustain it there. And we need to follow through on some of the expectations that are out there in terms of the rate path in order to keep it there.” Barkin said he was undecided on whether the Federal Open Market Committee should raise rates by 50 basis points or 75 basis points in September, with another employment print and another consumer price index report coming before the meeting. But there’s no debate on whether more action is needed to reduce inflation to the central bank’s target, he said.

Citing research by former Richmond Fed Research Director Marvin Goodfriend, Barkin said the policy mistake of the 1970s was the Fed raising and lowering rates in response to changes in economic conditions even with inflation still too high.

“What you try to do is try to get inflation down on a sustained basis, and then you have the freedom to loosen,” Barkin said. “If you can get to our target for a number of months, that’s what we would like to see.” NN: the FED will offer the markets no relief…. Tightening will continue unabated well into the second quarter of  next year where i expect the stock market to put in a TEMPORARY  bottom…… And the September rate hike will be another 75 Bases points…. The FED will not make the 70’s mistake again that is where they backed off to soon…… Not this time….. it really is different. Inflation is like the waves of the ocean it ebbs and flows.  I still think double digit FED funds rates are in the cards. Forget consumer confident or their inflationary expectations… When did those assholes know anything… Except- Something  to get fucked up on……  something to fuck (girls, boys or fury things) and something to fuck up!

Several Wall Street experts are warning that despite moving higher in recent weeks, the stock market still has further to fall—with recent gains likely to be nothing more than a “bear market rally,” as investor concerns about Fed rate hikes and slowing economic growth continue to weigh on markets. Despite an earnings season marked by profit warnings from major companies, the stock market has risen significantly from its low point on June 16, with the S&P 500 gaining roughly 12% and rallying for the last three weeks in a row. With stocks starting to recover from a brutal selloff in the first half of the year, investors are now debating whether recent gains are merely a bear market rally—with stocks set to hit new lows—or the start of a new bull market. Analysts at Bank of America argue that it’s “premature to declare a ‘big low’ in the market,” predicting more downside ahead and advising investors to remain “tactically cautious,” especially as the Federal Reserve continues to hike interest rates for the foreseeable future. The firm describes that many traditional indicators of a market bottom are yet to be triggered—such as rising unemployment, the Federal Reserve starting to lower interest rates, a slowdown in profit estimates and a decline in the two-year Treasury yield.

The optimism about inflation peaking and a looming “Fed pivot”—where the central bank pulls back from its aggressive tightening of monetary policy—is certainly “overdone,” while “nonsensical behaviors” are also returning to the market, according to Vital Knowledge founder Adam Crisafulli.

Both factors should “temper” investors’ near-term enthusiasm as they suggest further downside risks—though on the bright side, the U.S. economy is proving “more resilient than it’s being given credit for.” “Investors are increasingly in a game of tug-of-war over bullish and bearish talking points,” says Nationwide chief of investment research Mark Hackett. “Confusion is driving investor decisions,” which generally leads to “directionless volatility,” he warns. NN: If ever their was a la la market to short this bear market rally is it. We may get churned and burned but i see massive new lows for stocks by years end. And i am gambling accordingly.

The S&P 500 index on Friday finished above a chart level that delivered a dose of encouragement to stock-market bulls arguing that the U.S. bear-market bottom is in, though technical analysts warned that it might not be a signal to go all in on equities. The S&P 500 SPX, +1.73% on Friday rose 1.7% to close at 4,280.15. The finish above 4,231 would mean the large-cap benchmark has recovered — or retraced — more than 50% of its fall from a Jan. 3 record finish at 4796.56.  “Since 1950 there has never been a bear market rally that exceeded the 50% retracement and then gone on to make new cycle lows,” said Jonathan Krinsky, chief market technician at BTIG, in a note earlier this month. Stocks rose across the board Friday, with the S&P 500 booking a fourth straight weekly gain. The Dow Jones Industrial Average DJIA, +1.27% advanced more than 420 points, or 1.3%, on Friday and the Nasdaq Composite COMP, +2.09% rose 2.1%. The S&P 500 attempted to complete the retracement in Thursday’s session, when it traded as high as 4,257.91, but gave up gains to end at 4,207.27.