Be Ready: Today’s Fed “Shift” Will Seal the Market’s Fate in the Third Quarter
This market remains highly resilient – and shorts have taken it in the teeth now since October. The narrative has again shifted back toward the notion of a “soft landing.” Despite 4% inflation (which is still high), the government continues to spend money.
We could cut rates tomorrow… if we didn’t run a deficit and we lived within our means. But that’s too much to ask for the Yellens of the world… Onward: we march toward $50 trillion in debt.
Today, the Fed is expected to add more fuel to the fire by pausing interest rate hikes after 10 moves higher in the last 14 months. The interest rate is now running at 5%, and it will be months yet before they achieve full impact. After all, rate hikes lag and cool the economy in the process.
At 2 p.m., the Fed will release its policy decision. There’s now only about a 5% probability that the Fed will hike rates. As I’ve previously noted, the Treasury General Account will increase by several hundred billion this month, which can in and of itself act as a drag on the economy and lock up available capital in the reserve banking system.
And while there are plenty of people who believe today’s likely pause will mean an end to this rate-hiking cycle, let’s be clear: This cycle is not over.
Members of the Fed have suggested that any surprise in future data might warrant another 50-point hike in July. So this would be known as a “hawkish” pause, where the bank could resume its efforts in 45 days.
That said, this is a critical point in the timeline. As I said months ago, the narrative will soon shift from how high rates will move to how long they will remain elevated.
Expectations suggest that the members of the Fed will expand their timeframe for elevated rates into 2025. That will weigh on sentiment, particularly in the non-profitable part of the technology sector that has been resuscitated over the last few months.
Finally, we must keep an eye on Fed Chair Jerome Powell.
Powell will step before the cameras at 2:30 p.m. today. We’ve noted that the market tends to pick a direction between 2:35 p.m. and 2:37 p.m. A large number of economists have suggested Powell will take a more hawkish tone, reminding markets we may well see future rate hikes.
But given that algorithms will read his statement, who really cares?
The fireworks today should start by 3 p.m. after Powell finishes speaking.
Over the last two events, markets have rallied in the 2:30 to 3 p.m. period, only to tank for the rest of the day. If there ever was a “sell-the-news” event, it might be the Fed’s pause decision. But keep in mind that there is still an ample amount of betting that the markets will rise into Friday’s Quad Witching event. I’ll be with the members of Flashpoint Elite today to ensure we are in position to capitalize following Jerome Powell’s speech when the market picks a direction. Join us to squeeze in some extra prep and be in the best position following today’s decision by the Fed.
Then I’ll be live in the Money Morning LIVE! Room after my Flashpoint Elite session. Join me at 1:45 pm in the main room as I help you make sense of – and cash in on – the Fed’s decision, Powell’s statement, and the price action that follows.
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For my Postcards readers, I want to remind you that inflation isn’t going away any time soon. In fact, one of the most important sub-sectors in markets is seeing a big uptick in transportation costs…
And that is incredible news for anyone who is looking to generate gobs of income and price appreciation. I’ll be talking about this cash-rich sector today – and how you bank juicy dividends.
June 14 2023