Markets took the highest rate hike since 1994 in stride today. At first. But as the initial dust settled, major indices fell right back to where they started before the decision was announced. It was seemingly bang in line with expectations --75bps was already priced. And Esther George dissenting – already priced. Not much new to report. However, as Powell calmly delivered the hawkish message of 3.4% by year end ---175bps more to go, he also pacified investors by saying jumbo rate hikes (like 75bps) won’t be common going forward. Except for July. And even though he utterly dismissed the possibility of any 75bps hikes a mere 6 weeks ago. Nonetheless, bonds and stocks celebrated into the last hour of the day. Goodbye uncertainty, hello optionality?? After all, outsized moves now apparently leave the door open to slow and reverse beyond that point. Flexibility is good, except there was very little color on how they will orchestrate a so-called soft landing ---higher, faster is bound to lead to a recession…? But again, that seemed to be ignored for the time being. There were a couple of major changes to the statement: 1) a line was added saying The FOMC is “strongly committed” to returning inflation to its 2% objective” and 2) they removed prior language that said the FOMC “expects inflation to return to its 2% objective and labor markets to remain strong.” Meanwhile, the dollar saw a reversal lower and crude fell over 2.5%, leaving energy stocks as the worst performing sector in the S&P. How now, brown cow? Markets ended the day off highs while bonds ripped (yields closed on lows at 3.31). Yields moved aggressively going into today so a bit of a bond bounce back may have been warranted, but when the macro players return tomorrow, things could look a little different. And lest we forget the massive expiry on Friday which will likely bring another wave of volatility. 3700 is a big level to watch for Gamma players (or so they tell me). As Macro Man said today “getting The Fed right doesn’t necessarily mean getting the trade right…”
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