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Powell Hints at Higher Interest Rate Hikes in Coming Months
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Pre-market indexes are back in flux, following last week’s Fed decision to raise interest rates buoying markets on the news, but a week away from new monthly employment data. Markets gave back some of last week’s gains yesterday, but are back in the green this morning, led by the Dow +170 points, the Nasdaq +25 and the S&P 500 +15 points.
Fed Chair Jay Powell appeared yesterday to address inflation in the economy, and what the Fed plans to do about it. Powell, now into his second four-year term, has gained valuable experience in how to project Fed moves in the future with benign-sounding statements that may signal the Fed’s next move: yesterday, the Chairman said “50 basis points is on the table” for the next Fed meeting, in early May. This should assuage at least some inflation hawks while not sounding alarm bells for the doves.
Part of the resistance with amping up rates too far too fast — although 50 bps, or even 1%, is hard to argue interests rates going “too far” — is inverting the yield curve between 2-year bonds and 10-years. But it’s fairly evident a near-term inversion may be in the cards anyway: the 10-year, still growing at 2.34%, only has a 14 bps gap between the 2-year. Anything tighter than 25 basis points between the two makes market participants take notice. An inverted yield curve can mean — but not always means — an economic recession is in our future.
That said, with inflation keeping more stubbornly high than Powell had initially figured, ratcheting up interest rates — in addition to letting assets expire on the Fed’s $9 trillion balance sheet — it may take a half-point hike to amount to more than a drop in the bucket. Goldman Sachs ((GS - Free Report) is already calling for two 50 bps hikes this year. In other words: yield-curve inversion be damned, we need to cool inflation. We’ve already seen near-8% CPI, and chances are we have yet to see the top.
Finally, Nike ((NKE - Free Report) shares are up more than +5% this morning on its better-than-expected fiscal Q3 earnings report Monday after the closing bell. The company says demand is outpacing supply — and it did acknowledge supply-chain issues in the quarter — so the outlook for the world’s largest shoe company is fairly rosy, as well.
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Powell Hints at Higher Interest Rate Hikes in Coming Months
Pre-market indexes are back in flux, following last week’s Fed decision to raise interest rates buoying markets on the news, but a week away from new monthly employment data. Markets gave back some of last week’s gains yesterday, but are back in the green this morning, led by the Dow +170 points, the Nasdaq +25 and the S&P 500 +15 points.
Fed Chair Jay Powell appeared yesterday to address inflation in the economy, and what the Fed plans to do about it. Powell, now into his second four-year term, has gained valuable experience in how to project Fed moves in the future with benign-sounding statements that may signal the Fed’s next move: yesterday, the Chairman said “50 basis points is on the table” for the next Fed meeting, in early May. This should assuage at least some inflation hawks while not sounding alarm bells for the doves.
Part of the resistance with amping up rates too far too fast — although 50 bps, or even 1%, is hard to argue interests rates going “too far” — is inverting the yield curve between 2-year bonds and 10-years. But it’s fairly evident a near-term inversion may be in the cards anyway: the 10-year, still growing at 2.34%, only has a 14 bps gap between the 2-year. Anything tighter than 25 basis points between the two makes market participants take notice. An inverted yield curve can mean — but not always means — an economic recession is in our future.
That said, with inflation keeping more stubbornly high than Powell had initially figured, ratcheting up interest rates — in addition to letting assets expire on the Fed’s $9 trillion balance sheet — it may take a half-point hike to amount to more than a drop in the bucket. Goldman Sachs ((GS - Free Report) is already calling for two 50 bps hikes this year. In other words: yield-curve inversion be damned, we need to cool inflation. We’ve already seen near-8% CPI, and chances are we have yet to see the top.
Finally, Nike ((NKE - Free Report) shares are up more than +5% this morning on its better-than-expected fiscal Q3 earnings report Monday after the closing bell. The company says demand is outpacing supply — and it did acknowledge supply-chain issues in the quarter — so the outlook for the world’s largest shoe company is fairly rosy, as well.