Fake news headlines, Ukraine and Russia situation, World War III speculations and policy error. Let us show you a world of facts and figures and a perspective in light of evidences.
Initially Powell’s statement was no surprise when FED announced a 25bps rate hike which was expected already but its woefully way behind the curve as last time CPI was 7.9% and the FED funds was 13%
FED now expects 6 more rate hikes in 2022.
As a reaction all risk assets, Gold and Oil tumble.
Surprisingly, rate hike odds tumbled as seven hikes is what the market had been telling all along.
Because with even the Fed now forecasting a big slowdown to growth coupled with a surge in inflation…
Stagflation (pseudo) could be the most likely outcome. Immediately manifesting a plunge in 30Y yields.
As the entire yield curve pancaked. (What a mess right?)
..culminating with 5s10s inverting, a clear sign of a recession which the Fed hopes to induce to crush commodity demand, is now coming.
While the 2s10s curve has still about 20bps before it too inverts. This begins the countdown to the next recession…
A look at the 3Y1Y – 1Y1Y OIS fwd shows that markets are now pricing in almost two rate cuts in the next 3 years…
It confirms that the Fed, which was trapped long before today’s rate hike, will in future be forced to ease and/or resume QE (quantitative easing/printing money) soon, even as inflation continues to rage due to policy error.
Oil did indeed drop but (3MM bbls of Russian oil are now gone from circulation) on the Fed’s policy error as economic slowdowns traditionally lead to less demand, the policy error was not lost on either gold, which after dropping in kneejerk reaction to the hawkish FOMC statement, has since bounced to a session highs in anticipation of the coming easing.
Crypto bounced strongly as well right after tumbling before the FOMC (Federal Open Market Committee) meeting.
Stocks, which after tumbling initially, reversed sharply once it emerged that the market is now pricing in rate cuts, and recovered more than 100 points from session lows.
Led by the growth, deflation and slowdown sectors: IT and Comms.
What happens next? Well, the Fed is trapped while Powell (FED CHAIR )has no choice but to keep hiking in the coming months in high hopes that he will induce a modest recession to crush commodity demands. Every incremental rate hike will invert the curve that much more (unless the Fed actively start selling 10 and 30Y TSYs) and the market will price in even more rate cuts.
In short, the more hawkish Powell gets, the bigger the liquidity fire-hose he will have to unleash in a few months when the economy plummets into an all out recession, if not depression.
It’s a perspective that everyone should know. Just be vigilant and prompt as future belongs to those who can hear it coming.
