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Fed Holds Rates Steady but Expects More Increases; The End of the Fed's Tightening Is Still in Sight; Deflation is the new risk; Odey Asset Management's fight for survival; The Russian Soldier Who Surrendered to a Ukrainian Drone

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1) As I've been predicting for well over a month, yesterday the Fed paused its interest-rate hikes: Fed Holds Rates Steady but Expects More Increases. Excerpt:

Federal Reserve officials agreed to hold interest rates steady after 10 consecutive increases but signaled they were prepared to raise rates next month if the economy and inflation don't cool more.

New economic projections, released Wednesday after their two-day policy meeting, strongly suggested officials were leaning toward slowing down their increases rather than stopping them altogether. Most of them penciled in two more rate increases this year, which would lift them to a 22-year high, and boosted their expectations for growth and inflation.

"They really needed to hammer home the message that this was not the end, which they did," said Diane Swonk, chief economist at KPMG.

In its postmeeting statement, the Fed implied the decision to maintain the benchmark federal-funds rate in a range between 5% and 5.25% might be short-lived.

I think the Fed is bluffing, hoping that by signaling more rate increases later this year, it will jawbone inflation downward and not have to raise rates at all.

This Heard on the Street column in today's Wall Street Journal by my high school classmate Justin Lahart alludes to this: The End of the Fed's Tightening Is Still in Sight. Excerpt:

Investors are facing an unexpected new reality: The sooner the Federal Reserve feels it can stop raising interest rates, the less likely that it will need to cut rates in the future.

The end of the Fed's tightening campaign now seems in sight, if it hasn't already arrived. The central bank's policy makers on Wednesday left their target on overnight rates steady at a range of 5% to 5.25% – the first time they didn't raise rates at the conclusion of a policy-setting meeting since January last year.

They did indicate that they expect to raise rates by another half percentage point by the end of the year, more than many expected. But if the next inflation report shows signs of further cooling, even that could be in doubt.

2) I not only think that the Fed won't raise again, but will make one and possibly two 0.25% cuts by the end of the year because inflation will continue to cool – and the Fed might even start to worry about deflation, as this tweet by Genevieve Roch-Decter shows:

Tesla (TSLA) CEO Elon Musk agrees, replying:

3) The Financial Times continues to track the fallout from its bombshell report a week ago, in which it exposed one of London's best-known hedge fund managers as a serial sexual predator: How Crispin Odey evaded sexual assault allegations for decades. Here's the latest: Odey Asset Management's fight for survival. Excerpt:

Odey Asset Management is in new and dangerous territory after JPMorgan Chase served notice on its agreement to safeguard assets for the hedge fund's clients as its custodian.

Having a custodian – banks that hold customer securities to prevent them being lost or stolen – is a legal requirement for a hedge fund to operate in the UK, and Odey Asset Management would be in breach of the Financial Conduct Authority's rule book if it attempted to operate without one, according to one person familiar with the regulator's position.

The FCA's rule book also requires the outgoing custodian to find a substitute, something market sources say could be challenging in this case: most of Odey Asset Management's business partners have severed ties in the wake of allegations of serial sexual assault committed by the firm's founder, Crispin Odey, which were detailed in a Financial Times investigation last week. He strenuously denies the allegations.

"Now it's a three-way game between Odey , the regulator and the service provider," said a former regulatory official who has previously overseen winding downs.

"If there are no providers who are going to support Odey , the outcome is pre-determined, which is they're in wind-down, but you do need the regulator to play referee here and make sure it doesn't get messy," explained the former regulatory official.

Odey Asset Management is toast. Good riddance! (No sooner did I write this, than I saw this breaking news: Odey Asset Management to be broken up.)

4) This is an incredible article (and accompanying video) on the front page of today's WSJ – made all the more extraordinary to me because I know the person who provided the drone to the Ukrainian unit (I can't say more publicly, but if you'd like to hear the full story, e-mail me at wtilson@empirefinancialresearch.com): The Russian Soldier Who Surrendered to a Ukrainian Drone

Ukrainian drone pilots had been operating in the area since March. The Wagner troops leading the fight, they noticed, moved quickly and hid well. Regular Russian army recruits were slower and moved in groups, making them easier to pick off, the pilots said.

All day, the pilots had been using drones to kill the Russians with small grenades – a few dozen in all.

An assault drone had already set out to kill Anitin, according to its pilot, a 26-year-old Ukrainian who uses the call sign Boxer. After seeing the high-definition images of Anitin pleading for his life, Boxer aborted his mission and dropped the grenade short of his position.

"Despite that he is an enemy, even though he has killed our boys, I still felt sorry for him," he said.

Ukrainian officers at the command post told Boxer to make contact. He took a Sharpie marker from his medical kit and wrote in Russian on packaging from his food rations, "Surrender follow the drone." He filled the packaging with dirt for heft.

The drone flew a four-minute route and dropped the note to Anitin, who clambered over the wall of the trench to retrieve it. That's when he knew this was for real. "They made their will known, and I showed them that I agreed," he said.

The drones watched Anitin set off into no-man's land. He stepped over discarded rifles, grenades and helmets, and navigated around severed limbs and decaying bodies. "He was walking like a zombie. He was walking on top of his dead comrades lying around him," said a second lieutenant in the 92nd Brigade's Achilles drone company who uses the call sign Touareg.

Achilles and another drone unit called Code 9.2 took turns leading Anitin on a winding route through multiple trenches to minimize the danger, flying for 30 minutes at a time and then replacing their batteries. The Russian soldier looked up at them occasionally, seeking confirmation that he wasn't going to be harmed. He stopped frequently to sip water from a bottle lying on the ground, smoke a cigarette or just rest.

Best regards,

Whitney

P.S. I welcome your feedback at WTDfeedback@empirefinancialresearch.com.

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