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On July 27, 2022, the Federal Reserve carried out another rate hike of 75 basis points. This was widely expected at the start of the meeting, with the market attributing a 76.3% chance of a 75bp hike an hour before the meeting, with a (previously) 23.7% chance of a rate hike. 100 bps (1.0%). square. After the meeting and the press conference, the latest market data puts the most favorable odds on 100 basis points of hike remaining to be made by the end of the year, on three other meetings of the FOMC.
At the start of today’s meeting, assets such as stocks and bitcoin advanced in tandem, as the expectation of a dovish and neutral Fed from previous meetings increased investors’ appetite for risk. .
Back to the FOMC meeting and Powell’s comments. Here are some of the most notable comments throughout the press conference:
- “The labor market is extremely tight, inflation is way too high.”
- “We think we need a period of growth below potential to create some looseness.”
- “We don’t think we need to have a recession.”
- “Our thinking is that we want to reach a moderately restrictive level by the end of this year…that means 3% to 3.5%.”
- “It is likely that the full effect of the rate increases has yet to be felt.”
- “The Fed would not hesitate to take a bigger step [rate hikes] if necessary.”
- “We are looking for compelling evidence that inflation will decline over the next few months.”
- “The pace of rate increases will depend on the data.”
- “It is necessary to have a slowdown in growth.”
- “We think we need a period of growth below potential to create some looseness [in the labor market].”
- “I don’t think the United States is currently in a recession.”
- “No one can be sure that we can achieve a soft landing.”
Powell’s comments that were particularly notable were the abandonment of forward guidance from the Fed in the form of future rate hikes, which is a change from previous Fed meetings. This action gives the Fed the flexibility to pivot if needed in the future, which was obviously a positive sign for the short-term markets.
Looking beyond today’s meeting, the old adage of “Don’t fight the Fed” still holds true, and despite the more bullish outcome chosen today (a 75 basis point hike rather than a of 100 basis points), the result because financial market conditions are still marked by a sharp tightening, which will probably take some time to be felt in the markets.
Long-term investors and more active risk managers would do better to assess the likelihood of a historic low being in place for the equity and crypto markets, or rather if it is a new one. bear market rally.
In a previous article, “Beware of Bear Market Rallies,” we covered the dynamics of bear market rallies in both stock markets and bitcoin to provide subscribers with historical context.
For readers interested in learning more about the state of the markets and the global economic outlook, our upcoming July monthly report will provide much more detailed information on the interplay between geopolitics, monetary policy and financial markets. The report will be released to paying subscribers the following Monday.
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