But now that the dust has subsided, it looks like Powell could only be himself – and stocks and bonds thanked him for that as the Fed rallied 75 basis points on the Fed-funds rate, the biggest move. since 1994. After a silent initial reaction that saw the Treasury Department’s yield curve reverse for a while, bond, stock and even cryptocurrency prices rose as Powell left enough room for the size of the increase that can be expected. investors at the July meeting, with Powell saying he could go with 75 basis points or 50 basis points – and that the Fed would remain, as always, data dependent. “I think we came to this meeting where people were really afraid of the worst, that we were not just going to get 75 basis points, but that he was going to be very aggressive,” said Kenneth G. Tropin, founder and chairman of Graham Capital Management. , a macro hedge fund, which manages $ 18 billion. “In the end he did not do that, he wisely gave himself some choices.” Instead of shocking the markets with a more aggressive tone, Powell was “more diplomatic, more measured. “But he is,” Tropin added. Finally, it looks like the market may have caught up during the recent selloff as investors prepare for the 75-point increase on Wednesday, expectations that seemed to be consolidated by a Wall Street Journal report on Monday showing that the move was oversized. under examination. Some market gurus, including Jeremy Siegel of the University of Pennsylvania, responded by calling on the Fed to “take its medicine” and raise it by a full percentage point. In response to changing expectations, futures contracts began pricing at 75 basis points, not just in June but also in July, when the Fed’s policy committee will hold its next two-day meeting. But when it came to an end, Powell chose to leave enough room for himself to move up 50 basis points in July, and investors applauded, Tropin said. However, there is always the possibility of more pain ahead. As for the Fed’s dot plot and economic forecasts, Allianz’s Mohammad El-Erian said the “preliminary loading” of Fed interest rate hikes and the slowdown in economic growth signaled a “base inflation stagnation”. . MarketWatch has written more in the past about what this might mean for markets. Shares closed higher on Monday, with the S&P 500 SPX up + 1.46%, up 1.5% to 3,789, the first daily gain after a historic five-day losing streak to see its high-capitalization benchmark fall more than 10% to trade at the lowest since the beginning of 2021 as it confirmed its fall in bear market. The Dow Jones Industrial Average DJIA, + 1.00% increased just over 300 points, or 1%. The Nasdaq Composite COMP, + 2.50% completed 2.5% higher at 11,099. Bitcoin BTCUSD, + 3.76% ended the day lower, but far from the low after the Fed. The Cboe Volatility Index, often referred to as the VIX, closed the day lower at 29.4, but from the low of the session as the shares reduced their gains towards the close. However, the index reached a short-term high above 35 earlier this week. It is worth noting that the yield on five-year government bonds TMUBMUSD05Y, 3.375% remained higher than that of 30-year government bonds TMUBMUSD30Y, 3.333%. While the FOMC forecast did not predict a recession and Powell denied that it was the central bank’s goal to cause it, the Fed chairman said higher unemployment would be a sign that the Fed’s policy is working. Overall, however, both bonds and equities ended the day higher, as the “relief rally” in equities extended to bonds. Whatever happens in the future with the yield curve, long-term interest rates are likely to remain “anchored” as the economy begins to become more stagnant, said Brian Price, head of investment management at Commonwealth, a network of independent brokers. . dealership that manages $ 150 billion. Rex Nutting: US Federal Reserve Cannot Even Get The Economy Right Both stocks and bonds are likely to remain volatile as investors zero in on financial data as well as corporate earnings, which will be a factor when the second quarter earnings season begins next month. “I do not think the market will take root until inflation falls,” Price said. And unfortunately, there is so much the Fed can do about it. “The Fed can only do so much, obviously it can only control so much; there are other aspects to the supply side. “The Fed can’t really influence energy supply, we hope there will be some improvements,” he said.
