The Fed this afternoon made it an even 500 basis points (bps) of interest rate hikes in just the past 14 months. It’s an extraordinary scenario that underlines the extraordinary circumstances in the global economy since the Covid pandemic crisis began nearly three and a half years ago. The Fed funds rate now lies at a range of 5.00-5.25%, the highest levels we’ve seen since September 2007 — when George W. Bush was still president.
No new dot-plot accompanied this latest raise to interest rates, though some changes in articulation of policy were noted: in terms of whether the Fed feels further rate hikes may be appropriate, the former word choice “anticipates” was replaced this time around to “determining” whether this should be the case. In terms of “Fedspeak,” this is about as close as you’ll see to a willingness to stop raising rates. A direct quote from Powell: “We feel like we are close, or maybe even there.”
To that point in Powell’s address, everything was fairly copacetic in the equities markets. Where that began to waver was in the Q&A period regarding whether or not the Fed Chair expected to cut the Fed funds rate at any time this year — currently, analysts have already priced-in about 75 bps in rate cuts by the end of the year. Powell was direct about his intentions: “Our forecast is not for rate cuts coming.” The Dow fell -170 points within minutes.
By the time the closing bell sounded today, the Dow had slipped -270 points, -0.80% — near session lows. The S&P 500 hived off -0.70% on the day, while the Nasdaq was -0.46%. Only the small-cap Russell 2000, which has been underperforming the other major market indices over the past month and year to date, kept its gains to the tune of +0.41% on the day. We’re now at negative levels over the past month, save the Dow, which is currently in the green +0.036%.
Powell also mentioned, without equivocation, that a 2% inflation rate is still the target. Thus, we’re still a ways off when we look at any economic metric. That’s not to say these rate hikes haven’t had the desired effect thus far, especially in things like Consumer Price Indices (CPI) over the past several months. It would stand to reason that keeping this 5-5.25% rate in place will eventually help land the economic plane, but only if something “breaks” in the economy — and “breaks” worse than San Francisco-based regional banks “broke” six weeks ago (though First Republic finally just failed this week).
So what “breaks” this time? Hopefully nothing, but barring that, DoubleLine CEO Jeffrey Gundlach on CNBC this afternoon suggested we may start seeing low quality bond defaults in the second half of the year. For sure, a flight to quality across the board would likely be warranted. It’s a good thing, then, that following the Zacks Rank will keep one abreast of where the higher-quality stocks reside.
Questions or comments about this article and/or its author? Click here>>
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Fed Hikes 25bps; Markets Fall on Powell's Forecast
The Fed this afternoon made it an even 500 basis points (bps) of interest rate hikes in just the past 14 months. It’s an extraordinary scenario that underlines the extraordinary circumstances in the global economy since the Covid pandemic crisis began nearly three and a half years ago. The Fed funds rate now lies at a range of 5.00-5.25%, the highest levels we’ve seen since September 2007 — when George W. Bush was still president.
No new dot-plot accompanied this latest raise to interest rates, though some changes in articulation of policy were noted: in terms of whether the Fed feels further rate hikes may be appropriate, the former word choice “anticipates” was replaced this time around to “determining” whether this should be the case. In terms of “Fedspeak,” this is about as close as you’ll see to a willingness to stop raising rates. A direct quote from Powell: “We feel like we are close, or maybe even there.”
To that point in Powell’s address, everything was fairly copacetic in the equities markets. Where that began to waver was in the Q&A period regarding whether or not the Fed Chair expected to cut the Fed funds rate at any time this year — currently, analysts have already priced-in about 75 bps in rate cuts by the end of the year. Powell was direct about his intentions: “Our forecast is not for rate cuts coming.” The Dow fell -170 points within minutes.
By the time the closing bell sounded today, the Dow had slipped -270 points, -0.80% — near session lows. The S&P 500 hived off -0.70% on the day, while the Nasdaq was -0.46%. Only the small-cap Russell 2000, which has been underperforming the other major market indices over the past month and year to date, kept its gains to the tune of +0.41% on the day. We’re now at negative levels over the past month, save the Dow, which is currently in the green +0.036%.
Powell also mentioned, without equivocation, that a 2% inflation rate is still the target. Thus, we’re still a ways off when we look at any economic metric. That’s not to say these rate hikes haven’t had the desired effect thus far, especially in things like Consumer Price Indices (CPI) over the past several months. It would stand to reason that keeping this 5-5.25% rate in place will eventually help land the economic plane, but only if something “breaks” in the economy — and “breaks” worse than San Francisco-based regional banks “broke” six weeks ago (though First Republic finally just failed this week).
So what “breaks” this time? Hopefully nothing, but barring that, DoubleLine CEO Jeffrey Gundlach on CNBC this afternoon suggested we may start seeing low quality bond defaults in the second half of the year. For sure, a flight to quality across the board would likely be warranted. It’s a good thing, then, that following the Zacks Rank will keep one abreast of where the higher-quality stocks reside.
Questions or comments about this article and/or its author? Click here>>