Thread by @ChaoticInvestor

1/n So many people try to think so hard whether a #Fed #pivot is coming and when, so they could "buy the bottom" while Fed is pivoting. When in reality, the #market (both #StockMarket and #credit) are so much more complicated and unpredicatble then that.

2/N Even though I cannot claim I can predict what the Fed will do, I think they'll most likely going to behave in waves, similar to the 70's. By that I mean waves of rising ->falling->rising IR.

3/N The reason for that is this is the most likely scenerio for inflation itself. The different components of inflation moving in different tempo (time frames). For example, shulter prices definently affected by IR, but it takes some time to affect...

4/N Energy prices can be easily manipulated in the short term (see SPR releases) but not so much in the long term. On top of that we have inflation expectations, which are definatly important variable to inflation as well; those might become higher when..

5/N market notice its pricing and expectations are not realistic in the long term, and the low inflation paradigm will finally break. Expectations are highly important variable for inflation and if (when) it breaks it will affect inflation.

6/N Geopolitical events has been highly impactful in the recent two years, and they indicate for the end of globalization trend, U.S lead world and China as the factory of the world. The global balance has been a major disinflationary force, and if it is indeed breaking..

7/N We can expect more inflation in the long term. But structury inflation doesn't mean inflation cannot be reduced in the shorter term. Debate is usually between transitionary team to to not-trasitionary team. Well, both are likely right, when inflation could start dropping...

8/N and then rise again. Fed interest rate might reflect it: if inflation stop rising, IR will as well. If it'll drop IR may drop as well. This is the idea of soft landing. However, since inflation is composed of such different variables which affected in different tempo..

9/N It is highly unlikely to work. Few months of lower inflation doesn't mean the problem is behind us, and reducing IR might fuel inflation on top of hidden variables that could anyway rise in few months even without IR change. What will be the reaction? Increasing IR.

10/N Easy to speak how dovish attitude could get in the way of the fight with inflation. But on the other hand, as a policy maker, it is very hard to choose recession. Recession is here-and-now, it is scary, and it is very direct in the way it hurts people.

11/N inflation on the other hand, even if more dengerous in the long run, less visible and indirect. As a policy maker it is often an easier path. But when inflation is too high again, the decision seems easy again and everyone turn hawkish.

12/N this two forces - the unpredictability and complexity of inflation from the right and the clarity and directness of a recession from the left are pushing away decision makers from the obviously correct decision to kill inflation as fast as possible.

13/N This makes decision makers volatile, just like inflation and interest rates themselves.

14/N Even if CBs are bravely fighting inflation (and that's a big IF), they have limited power, and Govs are having the same choice with less capabilities, understanding, and more power in their hands.

15/N in other words, volatility of decision makers is also caused by them being non-single-decision-maker. CB and Gov are very different, with different interests, knowledge and capabilities. Actually, the Gov itself is also not a single entity as well..

16/N We also have malicious players - e.g., the russians and chinese interests are to fuel inflation in the west. They have resources (russia), products (china) and psy-warfare capabilities (both) to do that.

16/N the complexity of all of this makes it highly unlikely for inflation to actually move in an expected linear way. Inflation is very likely to decrease for few months and then rise again. Pivot team will be very suprised all their efforts was not enough for finding the bottom.