We follow the biggest single-day sell-off since mid-December with St Louis Fed President James Bullard giving some kind, dovish (!) words about interest rate levels and how they might be expected to affect the market going forward. As such, we’ve flipped from in the red again to start early trading to the green at this hour: the Dow is +54 points, the S&P 500 is +8 and the Nasdaq +39 points.
Bullard, who was one of two Fed presidents last week who floated the idea that a 50 bps rate hike might make more sense than the 25 bps hikes the market had recently got its head around, and new fears about the Fed making a mistake to the detriment of the U.S. economy began to resurface. But today, Bullard said the market has likely “overpriced recession fears,” citing China coming back online, Europe proving a bit stronger than earlier assumed and the U.S. economy more resilient than thought, even just 6-8 weeks ago.
That said, Bullard still thinks the Fed funds rate goes to 5.25-5.50% before the pause; this would be the highest level since March of 2001. Currently, we’re at 4.50-4.75%, with another two 25 bps hikes baked into the cake. Bullard was gently suggesting we add that third 25 bps as well — the question, then, would be whether this happens by May or June. If the March 22nd meeting — a month from today — hikes 50 bps instead, we’ll already be at 5.00-5.25%. The following meeting after that is May 3rd; that’s a decent stretch of economic reports to decide whether the Fed ticks to the highest rate in over 20 years.
With this in mind, the Fed minutes from the February 1st meeting are out today at 2pm ET. These minutes are routinely parsed for changes in rhetoric and potential direction, especially compared to Fed Chair Jerome Powell’s comments in the press conference directly following the policy release. Will we see that, despite Bullard (and Cleveland President Loretta Mester) suggesting a 50 bps hike would have been more appropriate, whether any voting Fed members (of which Bullard and Mester are not, currently) agreed with them. It’s quite possible a calm, steady 25 bps tightening will reportedly stand as consensus.
In any case, market participants now know not to fool with the Fed. Apparently, it takes some reminders every so often, despite the well-known adage “Don’t Fight the Fed.” Because the slow action to tighten interest rates back in the halcyon Great Reopening in the second half of 2021 is still fresh in people’s minds, perhaps it’s true investors don’t want to fight the Fed… but they can’t resist giving it the side-eye.
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Wall Street Waits for the Fed's February FOMC Minutes
We follow the biggest single-day sell-off since mid-December with St Louis Fed President James Bullard giving some kind, dovish (!) words about interest rate levels and how they might be expected to affect the market going forward. As such, we’ve flipped from in the red again to start early trading to the green at this hour: the Dow is +54 points, the S&P 500 is +8 and the Nasdaq +39 points.
Bullard, who was one of two Fed presidents last week who floated the idea that a 50 bps rate hike might make more sense than the 25 bps hikes the market had recently got its head around, and new fears about the Fed making a mistake to the detriment of the U.S. economy began to resurface. But today, Bullard said the market has likely “overpriced recession fears,” citing China coming back online, Europe proving a bit stronger than earlier assumed and the U.S. economy more resilient than thought, even just 6-8 weeks ago.
That said, Bullard still thinks the Fed funds rate goes to 5.25-5.50% before the pause; this would be the highest level since March of 2001. Currently, we’re at 4.50-4.75%, with another two 25 bps hikes baked into the cake. Bullard was gently suggesting we add that third 25 bps as well — the question, then, would be whether this happens by May or June. If the March 22nd meeting — a month from today — hikes 50 bps instead, we’ll already be at 5.00-5.25%. The following meeting after that is May 3rd; that’s a decent stretch of economic reports to decide whether the Fed ticks to the highest rate in over 20 years.
With this in mind, the Fed minutes from the February 1st meeting are out today at 2pm ET. These minutes are routinely parsed for changes in rhetoric and potential direction, especially compared to Fed Chair Jerome Powell’s comments in the press conference directly following the policy release. Will we see that, despite Bullard (and Cleveland President Loretta Mester) suggesting a 50 bps hike would have been more appropriate, whether any voting Fed members (of which Bullard and Mester are not, currently) agreed with them. It’s quite possible a calm, steady 25 bps tightening will reportedly stand as consensus.
In any case, market participants now know not to fool with the Fed. Apparently, it takes some reminders every so often, despite the well-known adage “Don’t Fight the Fed.” Because the slow action to tighten interest rates back in the halcyon Great Reopening in the second half of 2021 is still fresh in people’s minds, perhaps it’s true investors don’t want to fight the Fed… but they can’t resist giving it the side-eye.