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Is the Fed bluffing?

Three FOMC members spoke this week, including J Powell, its chairman. They key part of his speech was: “It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease”. In other words, don’t expect us to ease rates, it’s too soon and we told you higher for longer is the new motto. What was the market takeaway? The chart below shows the market was discounting 3 cuts for 2024 the prior week (orange) and after the speech yesterday it’s discounting 5 (blue). A conservative reading could be that the Fed is done hiking, and therefore the only way for rates is down. A more agreesive one could be the market is calling the Fed’s bluff: they can’t hike more without causing real pain, and that’s why equity markets rallied yesterday after the speech. In 10 days we’ll have an official view once the last #fomc meeting of the year concludes.


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Chart source: Bianco research



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