'Fatally Flawed Fed?' Jay Hatfield on 'Super Hawkish' FOMC & 'Fall Stall'

**SPEAKER_1** (0:00)
How likely is the Fed to raise rates at the September meeting? For more, we want to welcome in Jay Hatfield, CEO and CIO of Infrastructure Capital Advisors, to give us his perspective. So, expectations are on the rise for the Fed to raise rates. The CME FedWatch tool now consensus view is that 66% is the expectation now for a rate hike. That's been on the move since last week when we had Jackson Hole. What's your take?

**Jay Hatfield** (0:31)
Thanks, Ann. It's great to be back. Well, there's absolutely no doubt that this Fed is super hawkish. They want to demonstrate their independence from the administration. Two of them are being prosecuted by the administration.
And it is true that inflation has continued to be above target. The problem is though, that recent data does not support an increase. So, CPI has declined 0.4 over the last three months. It's running 1.6 annualized. But most importantly, PCE is very likely to be revised down. That's been announced by the BEA. And they're attacking two portions of the index that have been extraordinarily high over 20%. That's software and portfolio management. So, we're estimating that it could go as low as 2.6 year over year on PCE. And when you correct those two factors, the last three months annualized is 1.6.
And if you even adjust for shelter, you get much lower numbers. So, we don't think the data will support it, even though a majority of the FOMC absolutely wants to raise rates.

**SPEAKER_1** (1:45)
Yeah, it seems to be the case. Now, listen, the Fed Chair Kevin Warsh essentially said the job's not done when it comes to getting the Fed back to its inflation target, to get, excuse me, back to its target of 2%.
You know, he said underlying inflation is not improving fast enough. You think even with where the data sits right now, that there's something to your argument, which I'm starting to hear some who don't expect to see a rate hike. But that's the outlier view. You think there's enough there, there, that we could see a continuation of a pause?

**Jay Hatfield** (2:23)
We do. That's our expectation.
But not to downgrade the desire to do it. And I guess they could come up with a rationale. I mean, they are a fatally flawed Fed. The 2% is completely made up and too low. And they have no ability to forecast inflation. In fact, they even started talking about this 5-year number. Oh, it's been too high for 5 years. So that's kind of the antithesis of forecasting. And they ignore the fact that a good portion of that 5 years, the Fed increased the money supply 70%.
And right now, it's negative 10% year over year. So we have a fatally flawed Fed. They're perfectly capable of doing something stupid, which they have in the past when they did the transitory, lack of increase there. But they're going to get a, almost certainly get a preview of this PC data. So I think they're going to be reluctant to look really stupid, raise rates and then have the data be revised down, at least 0.5 or as up to 0.6 percent year over year, and all the recent months down too.
So it's just a matter of whether they're going to be more objective or just try to demonstrate their independence.

**SPEAKER_1** (3:41)
Jay, I am curious to know your thoughts as we kick off a new month. August was strong. We finished out August up 1 percent on the S&P 500 NASDAQ finished higher by, NASDAQ 100 by 2 percent. NASDAQ itself higher by 1.76 percent. Dow was flat for the month.
We are still in a bull market. It's the fifth month in a row of gain. September, notoriously weak. Are you bullish?

**Jay Hatfield** (4:13)
I'm not during September. We're calling for a fall stall.
The reason is what to imply, which is earnings are behind us and we did a Broadcom this week, but that's pretty minimal. And so then we're subject to random events. And today's random event is TACC on tube, supertankers, higher oil prices, higher interest rates. So fall's never good. We are saying we'll be enough 7,500 to 7,800. So that means we have decent amount of downside from here.
But our target for the year, and that assumes the straight stays closed, is 80 to 50 So we think in 7,500 that will be an attractive point to add exposure. We wouldn't add exposure right now because there's 10 percent upside at that 7,500 number. So kind of normal September activity, no news except bad news, which comes from everything but companies.

**SPEAKER_1** (5:14)
So essentially, it sounds like you're saying sit on the sidelines this month to kind of wait out the potential seasonality factor here. Getting to that target north of 8,000 for the S&P 500, is the risk factor the straight-up hormones?