November 28, 2022 | Daily JAM, Videos |
Today I posted my two-hundred-and-ninth YouTube video: Is the Fed Confusing or Just Confused? Today’s topic: Is The Fed Confusing, or Just Confused? First, Mary Daly, president of the San Francisco Fed came out with a very mixed message about the Fed’s December 14 meeting. The market seems to have decided that the Fed will raise rates by just 50 basis points, she said, but that it’s still too early to decide and a 75 basis-points increase is still on the table. But, she then added, the Fed is worried about overcorrecting and causing a recession. Then, Loretta Mester, president of the Cleveland Fed, announced that she is open to slowing the rate of the rate hikes, but was unclear on what “slowing” would actually mean. I think the key to market direction after the December meeting is the Dot Plot Summary of Economic Projections. The last time the Fed released a Dot Plot was September and it’s already wildly out of date. The September projected inflation rate for 2023 was 2.6-3.5% and 5.3-5.7% for 2022. Both projections will likely be revised higher in December. Inflation isn’t coming down as fast as the Fed thought in September, but it is coming down. Big question for the financial markets, though: Is it coming down enough? Rate hikes of 50 or 75 basis points are on the table but does the Fed now think it can stop raising the rates? My conclusion is that the Fed sounds confusing because the Fed is actually confused.
November 17, 2022 | Daily JAM, Morning Briefing |
The hits keep coming. Today, November 17, St. Louis Fed president James Bullard took the lead. Bullard called for raising rates to at least 5.00%-5.25%, which he called the “minimum level” to be “sufficiently restrictive.” During Bullard’s presentation, he showed charts indicating rates will need to be 5.00%-7.00% to curb inflation.
November 16, 2022 | Daily JAM |
Is the Federal Reserve now in the business of talking down stock prices? It sure looked like it today.
November 11, 2022 | Daily JAM, Morning Briefing |
After Thursday’s CPI inflation report, stocks have a clear path to move higher in a strong rally through the end of the year. Critically, the October inflation report, which showed inflation falling slightly more than expected, gives Wall Street the data it needs to sustain its favorite rally story: Inflation has peaked and is heading down. Which means the Federal Reserve will soon pause its policy of increasing interest rates early in 2023 and pivot to cutting interest rates by the middle of the year. You could see that story at work in the huge jump in Treasury prices and the huge drop in yields. The yield on the 10-year Treasury fell 23 basis points to just 3.86% on Thursday That’s a huge move–and deeply significant–considering that the yield on the 10-yer bond was above 4%, at 4.21% on Monday, November 7.
November 4, 2022 | Daily JAM |
Right now, the Federal Reserve’s benchmark short-term interest rate stands at a range of 3.75% to 4.00. Expectations on Wall Street point to another 50 basis points in December and another 50 basis points in February.
Which would take the interest rates up to a range of 4.75% to 5.00%. Would that be the peak?
November 2, 2022 | Daily JAM, Morning Briefing |
At first investors and traders thought they heard the Federal Reserve signal that the central bank was thinking about a pivot to a policy of cutting interest rates. And stocks rallied. But then Fed chair Jerome Powell “clarified” the Fed’s thinking in his post-meeting press conference. It would be “premature,” Powell said, to think about pausing the Fed’s policy of increasing interest rates to fight inflation. The Fed, he added still had a “ways to go” and the “Ultimate level of interest rate will be higher than previously expected.” Powell stressed that the Fed’s goal continues to be a reduction in inflation and that the Fed is surprised at how sticky prices are and that inflation hasn’t given up more ground to the Fed’s six interest rate increases in 2022.
November 2, 2022 | Daily JAM, Morning Briefing, Videos |
Today is Ground Hog Day for the Federal Reserve. The U.S. central bank will announce whether or not it sees its shadow. It’s predicted to announce a 75 basis point increase in interest rates. However, there’s no revision of projections on interest rates, inflation updates, or GDP growth assessments scheduled for this meeting. Which leaves Wall Street free to speculate until the Fed’s December 14 meeting with those Dot Plot projections. During this “gap” in Fed guidance, investors are speculating on a pivot from the Fed’s policy of raising interest rates to either a pause or an outright reversal that moves to cut rates. This speculation, along with seasonal trends, has led to a rally that is now feeding itself as portfolio managers try to take advantage of this end-of-the-year bounce. However, I believe that the idea the Fed will pivot soon is incorrect and we’ll see another leg of the bear market starting around January. Because of this, I’d suggest not putting any new money in the market and instead waiting for upcoming lows as the Bear Market continues through 2023 to a bottom sometime that year or in 2024. And do remember that we get jobs numbers for October on Friday.
October 31, 2022 | Daily JAM, Morning Briefing |
Today, Monday, October 31, it’s Morgan Stanley strategist Michael Wilson, who until recently was a Bear, joining the “the Fed is about to pause or end its interest rate increases” camp. Indicators including the inversion of the yield curve between 10-year and three-month Treasuries “all support a Fed pivot sooner rather than later,” Wilson wrote to clients today. “Therefore, this week’s Fed meeting is critical for the rally to continue, pause or even end completely.”
The Fed is widely expected to raise its short-term benchmark interest rate by 75 basis points–to a range of 3.75% to 4.00%–at its Wednesday meeting. The CEM FedWatch Tool, which uses prices in the Fed Funds Futures market to calculate the odds of a Fed move, put the odds of a 75 basis point increase at 86% today, up from 82.2% on Friday. The remaining sentiment is betting on a 50 basis point increase. No one is expecting just a 25 basis point increase.
October 30, 2022 | Daily JAM |
The big event of the week is expected to be the Wednesday, November 2, meeting of the Federal Reserve’s interest-rate-setting Open Market Committee. The Fed is widely expected to raise benchmark short-term interest by 75 basis points to a range of 3.75% to 4% from the current range of 3% to 3.25%. Widely. But not universally. A week or so ago, on October 21, the CME FedWatch Tool, which calculates the odds of a Fed move by looking at prices in the Fed Funds Futures market, put the odds of a 75 basis point increase at 95%. But as of Friday, October 28, the odds had fallen to just 81.3%. On the other hand, the odds that the Fed will raise interest rates by just 25 basis points have climbed to 18.7%. This means that whereas a week ago I would have said that a 75 basis point increase would not have moved financial markets much, if at all, because it was almost universally expected and therefore priced in, now there’s may enough contrary opinion to make a 75 basis point increase an event. If nearly 20% of the market turns out to be wrong and winds up disappointed when the Fed raises rates by 75 basis points, then could see stocks and bonds sink.
October 28, 2022 | Daily JAM, Morning Briefing |
Inflation as measured by the Personal Consumption Expenditures index, the Federal Reserve’s favorite inflation guide, rose at an annual rate of 6.2% in September, according to data released today, October 28. The core index, which excludes more volatile prices for food and energy, rose at an annual rate of 5.1%. The month-to-month gain in the overall PCE was 0.3% and the core index climbed a month-to-month 0.5%.
October 19, 2022 | Daily JAM, Morning Briefing |
The two-day bounce in U.S. stocks stalled today. The Standard & Poor’s 500 closed down 0.67% and the NASDAQ Composite was down 0.40%. Why? Increased sentiment that the Federal Reserve will raise its target short-term interest rate by a hefty 75 basis points at its November 2 meeting and its December 14 session. While the 75-basis-point increase at the November 2 meeting has been expected for some time, the shift in sentiment for the December 14 meeting is new.
October 13, 2022 | Daily JAM, Morning Briefing |
After Thursday’s surprising and disappointing higher-than-expected CPI inflation number stocks rallied–but bond prices sank and bond yields rose on expectations that higher inflation means faster interest rate increases from the Federal Reserve. How much higher?
