In this sneak peek from the Action Alerts PLUS investing club, economist and former NYSE trader Stephen Guilfoyle reveals the most important member of the Federal Reserve to watch in the weeks ahead.
Related: Stock futures lower as Wall Street takes in Powell's comments on U.S. economy
FULL VIDEO TRANSCRIPT BELOW:
J.D. DURKIN: Given all the speakers that we heard, paired with stronger than expected economic data the last few days, Sarge, what is your read on the state of affairs over at the central bank? What are you following?
SARGE GUILFOYLE: Well, I don't think Jerome Powell screwed this up. I mean, he basically left open as much optionality as he can as far as interest rates and monetary policy is going forward. True, the economy's been a little hotter than they probably would have liked the last month or two.
Overall though, he looked back over a year, and over a year there is serious disinflation. So the ball, from the big picture, looks like it's rolling his way. It may be getting away from him. That's why he sounded a little more hawkish, I think, than a lot of his colleagues have this week.
A lot of them were pretty much, like Harker, he sounded very dovish. He's been out there saying, no rate hike November, no rate hike until we really see a need to. Almost no one's ruled out future rate hikes. I think the issue now really, is how the long end of the curve has gotten away from the Fed's control.
And really, the forces of free market pricing have taken over bond prices from the middle of the curve on out to the long end. So the Fed, while they can still control the short end, and thus, therefore, control the slope of the curve, they really don't have control over monetary conditions at the longer end, because let's face it, the bond vigilantes have taken that over.
J.D. DURKIN: Sarge, a quick follow-up on all of these Fed speakers. It can be overwhelming, even for the most ardent of market or central bank follower to have all these dizzying speeches or public comments that are given. Are there key officials that you listen to more than others?
For instance, President Bostic, Raphael Bostic, not a voting member this year, but when he speaks, a lot of people tend to listen. He is a voting member for next year. So in this environment, as we are in the fourth quarter, knowing the voting arrangement for the FOMC is set to change in a few months, are there certain officials that you maybe give a little bit more of an ear to than others?
SARGE GUILFOYLE: Sure. I mean, like obviously, Jerome Powell, he's very important. And Stanley Jefferson is very important. He's the Vice Chair. Anybody who's on the voting committee for next year is probably more important than somebody who's on the voting committee for this year, because this year, they're not going to raise rates, short-term rates in November.
I think it's down to about a 20% probability that they raise rates in December, so they're probably not going to raise rates again this year. So your 2024 voters are far more important than your 2023 voters. Although they all are important, I believe Mester is a voter next year. I'm not looking at my screen. Obviously, I'm outside. Mester is very, very important, because she thinks like a hawk.
She has been the thought leader on the hawkish side of the football for years now. And with Esther George gone in KC, she pretty much stands alone as a Fed President in that regard. So if she leans one way or the other, she's going to lead those who are thinking more hawkishly. Pretty much, she is the one to follow once you get past the governors.
J.D. DURKIN: Yeah, and you are correct. Loretta Mester of Cleveland, currently an alternate member, is set to be a full voting member starting 2024. Even without the notes in front of you, Sarge, you're always batting .1000.
