The Federal Reserve did indeed raise the Fed Funds rate 75 basis points today and made it clear that they see another 100-125 basis points of hiking before year end. This hawkish version of the Fed is remaining even more hawkish than many market pundits envisioned. Those who thought the Fed would cave by this point in their fight against inflation are being proven wrong. The Fed Chair has made it perfectly clear that they are willing to accept the pain necessary to achieve their goal of moving inflation back towards 2%. Of course, that pain that “they” are willing to accept is really the pain that will be inflicted on all of us citizens. Jobs will eventually be lost, and the stock market is likely to continue to reduce the wealth effect or be sloppy at best.
As usual on days when the Fed moves, stocks were all over the place, but in the end the bears held the high ground. It is very difficult to get excited about stocks in the near term given the Fed’s actions and the Fed Chair’s comments today. By the close the Dow Jones Industrial Average was down 522 points to finish the day at 30,183. The S&P 500 was down 66 points to close at 3,789. The Nasdaq Composite Index was down 204 points to close at 11,220. Gold was up $14 to trade at $1,685 per ounce, while oil was down $.61 to trade at $83.33 per barrel WTI.
Will we go to new lows for stocks in the coming weeks or will we maintain a trading range for the rest of the year? That will be determined over time, but it is clear that the Fed feels that they can move stocks lower, reducing the wealth effect with their hawkish tone. Remember, that they can only affect demand as their tool to fight inflation and when folks look at their 401k and see that they are less wealthy than a year ago, they tend to rein in spending. The Fed is caught between a rock and a hard place. If they aren’t diligent in their fight against inflation, prices could get even more out of hand. If the Fed is too diligent in its fight against inflation, they could cause the deep recession that their policies have been trying to avoid for more than a decade. Quite a conundrum, isn’t it?
Have a nice evening everyone.