-Taper accelerated to $30B (up from $15B)
-Dot plot shows and extra hike in 2022 to 3 (up from 2)
-The Fed will not hike rates if A. the Economy cannot withstand one and B. Not until the USA has reached FULL EMPLOYMENT
That last part was the “olive branch” to the bulls. There’s plenty of ambiguity around the definition of “Full Employment”, and when asked about it in the Q&A…Powell bobbed and weaved. Powell even went as far as saying something to the effect that they “didn’t want to roil markets”. That was good enough for a +2.00% rally across the board in the broader stock indices.
Interest Rates: This is going to be fairly unpopular with many, and always subject to change, but my bias still lies on the side of the “bond bulls” at the moment. Why? Well for one thing, bond yields have the tendency to remain “range bound” as growth continues to accel, but the Inflation component of the economy begins to cool. Furthermore, we believe there is going to be a pending shift to Scenario 4 aka Risk-Off backdrop headed into Q2 2022 – which in that case, it’s a clear cut BUY TREASURIES. Once again, this is akin to Q4 2018 – when the FED went HAWKISH right at the cycle TOP! While consensus was bearish bonds (because the Fed was Hawkish obviously), we were BULLISH bonds because we had the highest probability suggesting that the cycle was COOLING and we were moving to Scenario 4 in spite of the Fed being too HAWKISH. You got that? So in essence you could say that the Fed is a HAWKISH as they’re going to be RIGHT NOW.
Side note: The BOE raised interest rates to 0.25% vs 0.10% exp. EVEN in light of the Omicron breakout in the UK. So maybe that should tell you something about how central banks are going to set policy even in the face of Covid19 going forward.
I will be traveling today, but I’ll be in front of the market tomorrow for the morning session and into the close. So if there’s something actionable, you’ll get a signal, and you can call the desk for assistance.
All the best. Good luck.