Last week I made two calls that are playing out sooner than I expected. The calls:
1) The Fed will hesitate to raise rates during a war and
2) there is no way they will raise them the 6-7 times they’ve announced for the 1.5-1.75pt minimum rate hike increase
Fed Powell confirmed those 2 calls in one statement. They will increase rates by a quarter-point this month (instead of the 50bp hike markets were expecting) and cited the war as a concern. The problem the Fed has is that inflation is 3-4 times their target of 2%. Powell did mention that they will try to raise them slowly, monitor inflation, and if inflation is still running rampant then they will get more aggressive with their policies. As we know, though, the Fed saying something is a lot different than them doing something.
In The News
We have a relatively quieter start to the week with some inflation numbers coming in on Thursday and Friday. Expect a continuation of volatility as we get updates with the war overseas. We have seen financial sanctions placed in Russia and the next one may be with the energy markets (oil included).
Thursday
- Initial and Continuing Jobless Claims
- CPI numbers
- Federal Budget Deficit
Friday
- 5 year inflation expectation
Chart Check
As uncertainty and fear grow due to the Russian/Ukrainian war, money has started to flow into the bond markets. The recent large red candle was when Fed Chairman Powell said there will only be a .25pt hike instead of a .50pt one. The stock market rallied on that news. (see chart above)
I’m not floating any rate locks. If there is fear, money will flow into bonds which is good for rates. But due to the fear, the Fed may prolong any rate hikes, causing a stock market rally and an increase in our interest rates. This is the time to educate your clients. Make sure they understand the environment we are in and advise them on how to maneuver through all of the uncertainty
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