I have been asked several times in the last couple of days what I think the Fed will do tomorrow with regards to rates and messaging. I have felt since last week that the Fed “should” pause here simply because in my mind the banking/financial system is the immediate risk while inflation, if it doesn’t solve itself, can be dealt with at another time. But I think the markets have given the Fed enough cover that they will raise rates by a quarter point tomorrow. I do think their messaging is likely to be much less hawkish and they might signal that a pause, at least, is likely going forward. I’m guessing that the markets will react more to the message than the action. We will see.
As for today, as mentioned, the markets seem to be giving the Fed cover. By the close, the Dow Jones Industrial Average was up 316 points to close at 32,560. The S&P 500 was up 51 points to close at 4,002. The Nasdaq Composite Index was up 184 points to close at 11,860. Gold was down $41 to trade at $1,940 per ounce, while oil was up $1.86 to trade at $69.50 per barrel WTI.
The problem with these “bank/financial system” issues is that every time you think they have it solved, another problem pops up. Again, that is just another reason added to why we have doubted every rally over the past 12 months. But the good news is that sentiment is/has been so negative, much of the downside could already be accounted for. Of course, these “incidents” only increase the likelihood of recession in the near term. Is that priced in already? Seems unlikely, but impossible to know for sure. Only time will tell of course. In the meantime, we’ll let you know how the markets react to the Fed decision tomorrow. Stay tuned.
Have a nice evening everyone.