“There is an obvious need to move expeditiously to return the stance of monetary policy to a more neutral level” – Fed Chairman Jerome Powell
As I expected, the Fed continued with a quarter-point hike in rates. The markets expected that. Last week I said his outlook would weigh more than the actual rate hike. Powell’s outlook was much more hawkish than the markets wanted. The quote above references how they will need to be more aggressive with rate hikes to battle inflation. Whether that happens or not is yet to be seen. I did mention in a previous newsletter how the Fed did a fantastic job of raising rates without physically doing anything. We saw more from that playbook last week.
When the increase in rates hurts corporations to the point where they can’t refinance their loans or when they start missing expectations on quarterly reports, we will hear a lot more about a possible recession.
On the flip side, to make markets soar to new highs, we don’t need to beat inflation right now. We just need things to go from bad, to less bad. If the next inflation report comes in at 7.9% or lower, the markets will have thought inflation has peaked and it will be another “Reprice” email day.
Here is what we have coming up this week. We get a lot of economic data.
- National House Price Index (yoy)
- Job openings
- Philadelphia Fed President Harker speaks
- Atlanta Fed President Bostic speaks
- ADP employment report
- Gross Domestic Income
- Corporate Profits (yoy)
- Richmond Fed President Barkin speaks
- Kansas City Fed President Esther George speaks
- Initial and continuing jobless claims
- Personal Income and Consumption numbers
- Unemployment rate
- Chicago Fed President Evans speaks
Last week I mentioned how the technicals did not look good. There was no attempt of a floor/support being carved out and this market had lower to go. I use the same graph to educate my clients as well with the likelihood a trend will continue or not. The chart above doesn’t look pretty either. It ended the week with a slight dip below the lower part of the channel. Due to the aggression of Friday’s move, we may get a slight bounce back to start the week off tomorrow.
I don’t think I’ll be floating this week after Monday. A lot will rely on the economic data (a healthy report will equate to the economy is ready for rate hikes) and what the Fed Presidents have to say.