0.75% Rate Hike Fully Priced
The Federal Reserve is about to do something that hasn’t happened since 1994; today, just a little later on in the day, the statement will come out, with how much the Fed Funds Rate will rise to.
Up until a week ago, it was priced at 0.50%, but after the CPI report came out this past Friday, the market has begun to price 0.75%, as virtually guaranteed and I’ve even heard voices calling for a 1.00% hike!
Needless to say Wall Street wants the FED to stop feeding us candy and sugar and to start telling us the facts, the hard truth and call it the way it is.
Wall Street doesn’t want any of that transitory crap or that the FED sees conditions improving or that their policy is working; they want to hear Powell say the equivalent of “Houston, we have a problem” and acknowledge that a recession is imminent, if we don’t all get our s**t together.
The market is pricing A LOT of rate hikes, because at 3.6%, they’re assuming the FED hikes by at least 0.75% today, 0.75% in July and perhaps another 0.75% in September, which will take us to 3.00%.
The government’s 10-year Treasury bond is already trading at 3.40%, an 11-year high and the dollar’s strength is getting out of whack, since Washington is offering the highest interest rate of any developed economy by a mile!
The 10Y yield surged above 3.45% to its highest since 2011:
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What will the FED do? More importantly, how will Powell answer the questions posed at him afterwards and how will he behave; frantic or calm, delusional or down to earth?
This is a real make-or-break moment, because he either puts on a real show with substance and doesn’t deliver a loose speech, filled with sweet talk, or he gives us bullshit and the market tanks again, until he gets the message that we want him to talk to us straight, eye to eye, not from a position of trying to protect us from the reality of inflation.
We need to stop dancing around the fire.
Ahead of today, hedge funds have raised their cash reserves again, sending the S&P 500 into bear market territory:
It was a more ferocious sell-off than in 2008!
So, as the statement is announced today and Powell answers reporters’ questions right after, we will be watching the Russell 2000, the NASDAQ 100, the S&P 500 and the Dow Jones 30, as well as bond yields, gold, Bitcoin and speculative growth stocks to see what the judgement is.
This is, by far, as important a day as the time the FED had to address market failure in April 2020!
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