Wednesday, September 21, 2022
At this point, it’s hard to come up with a new angle on what the Fed means to do this afternoon, to conclude its monetary policy decision at 2pm ET today following a two-day meeting of the Federal Open Market Committee (FOMC). At least if there were some question what the Fed funds interest rate hike was going to be, we could continue to banter about the possibilities. But there isn’t: it’s 75 basis points (bps), which will bring the bottom-end of the range to an even 3.00%.
We’ve also spoken at length lately on where the Fed funds rate will ultimately rest, and certainly the answer is: higher than 3.00-3.25% — probably a full percentage point higher or so before a pause allows inflation metrics to catch up (roll down) toward optimum levels. The “soft landing” of the Fed curbing inflation without crashing into a recession is still very much an open question.
Housing and commodities have already come down substantially as a result of rate hikes made thus far, but certain aspects of the economy are not only being more stubborn, they’re actually still moving in the wrong direction. For instance, while homeownership has approached “recession” status, the average rent in New York City has recently hit an all-time high average of $5000 per month. A rail strike was averted in the past week, but only after transportation workers’ wages have increased.
Ahead of the previous FOMC meeting, upon which it was universally accepted a 50 bps rate hike was coming, the Wall Street Journal was tipped off the Fed was actively considering 75 bps instead — and that’s what we got. There was no such media leak this time around, so a 100 bps increase today would be a big surprise. Consider this a greater than 90% chance 75 bps is the figure.
What Fed Chair Powell says in his press conference directly following the announcement is about the only variable we have remaining, although even there we can expect a stalwart stance toward bringing inflation down. Powell has already used the word “restrictive” when discussing where the Fed funds rate should be brought going forward. Will he give some indication where this threshold may be? Will he utter 4% at any point in this conversation? This is the sort of focus you can expect later today.
After the opening bell but a few hours before the Fed statement, Existing Homes Sales for August are expected to fall to new cycle lows for the eighth straight month to around 4.68 million seasonally adjusted, annualized units. This would follow the 4.81 million reported for July, which itself was a new cycle low — the lowest print since early 2020. Off the January peak, Existing Home Sales have deteriorated each month: first from pulling business from later in the year based on pending higher mortgage rates, and now due to falling home prices.
Pre-market futures look good ahead of the open: the Dow is +144 points, the S&P 500 is +20 and the Nasdaq is +55 points. Over the past five trading days, the Dow is performing the best: -1.5%. The Nasdaq and the small-cap Russell 2000 are both -2.2% over that time period, while the S&P is taking up the rear, at -2.4%. Dare we expect a bounce during/after Powell’s address? If we get one, will it last? Stay tuned…
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Image: Bigstock
Time Is Nigh for 75bps Rate Hike
Wednesday, September 21, 2022
At this point, it’s hard to come up with a new angle on what the Fed means to do this afternoon, to conclude its monetary policy decision at 2pm ET today following a two-day meeting of the Federal Open Market Committee (FOMC). At least if there were some question what the Fed funds interest rate hike was going to be, we could continue to banter about the possibilities. But there isn’t: it’s 75 basis points (bps), which will bring the bottom-end of the range to an even 3.00%.
We’ve also spoken at length lately on where the Fed funds rate will ultimately rest, and certainly the answer is: higher than 3.00-3.25% — probably a full percentage point higher or so before a pause allows inflation metrics to catch up (roll down) toward optimum levels. The “soft landing” of the Fed curbing inflation without crashing into a recession is still very much an open question.
Housing and commodities have already come down substantially as a result of rate hikes made thus far, but certain aspects of the economy are not only being more stubborn, they’re actually still moving in the wrong direction. For instance, while homeownership has approached “recession” status, the average rent in New York City has recently hit an all-time high average of $5000 per month. A rail strike was averted in the past week, but only after transportation workers’ wages have increased.
Ahead of the previous FOMC meeting, upon which it was universally accepted a 50 bps rate hike was coming, the Wall Street Journal was tipped off the Fed was actively considering 75 bps instead — and that’s what we got. There was no such media leak this time around, so a 100 bps increase today would be a big surprise. Consider this a greater than 90% chance 75 bps is the figure.
What Fed Chair Powell says in his press conference directly following the announcement is about the only variable we have remaining, although even there we can expect a stalwart stance toward bringing inflation down. Powell has already used the word “restrictive” when discussing where the Fed funds rate should be brought going forward. Will he give some indication where this threshold may be? Will he utter 4% at any point in this conversation? This is the sort of focus you can expect later today.
After the opening bell but a few hours before the Fed statement, Existing Homes Sales for August are expected to fall to new cycle lows for the eighth straight month to around 4.68 million seasonally adjusted, annualized units. This would follow the 4.81 million reported for July, which itself was a new cycle low — the lowest print since early 2020. Off the January peak, Existing Home Sales have deteriorated each month: first from pulling business from later in the year based on pending higher mortgage rates, and now due to falling home prices.
Pre-market futures look good ahead of the open: the Dow is +144 points, the S&P 500 is +20 and the Nasdaq is +55 points. Over the past five trading days, the Dow is performing the best: -1.5%. The Nasdaq and the small-cap Russell 2000 are both -2.2% over that time period, while the S&P is taking up the rear, at -2.4%. Dare we expect a bounce during/after Powell’s address? If we get one, will it last? Stay tuned…
Questions or comments about this article and/or its author? Click here>>