At the front of investors' minds earlier this week was the Fed’s inflation damnation road show that kicked off on Tuesday and the comments that have followed from Fed officials on Wednesday and Thursday.
Numerous Fed officials spoke over the past few days, led by the most hawkish tone from Jerome Powell that we’ve heard since 2018.
Here are a few of the most telling cuts from this week so far.
On Tuesday, speaking at a Wall Street Journal conference on the current inflation problem, Powell noted that “no one should doubt our resolve” and that “if that involves moving past broadly understood levels of neutral, we won’t hesitate to do that.”
In a speech to the Mid-Size Bank Coalition of America on Wednesday, Philadelphia Fed President Patrick Harker stated, “High inflation is a scourge, punishing low- and moderate-income families the most.”
On Thursday, Michael Barr — President Biden’s nomination for the Federal Reserve’s top banking regulator — said, “I strongly believe that inflation is far too high today, and I’m committed to bringing it down to the Federal Reserve’s target of 2%."
Also on Thursday morning, CNBC reported that Kansas City Fed President Esther George said, “Higher interest rates are needed now to bring down inflation.” This indicates 50-bp hikes at minimum for the near term.
Fed Speak Crushes Last Week’s Snapback Rally
Stocks are on the downswing again this week. There was a brief moment of hope Tuesday afternoon when stocks appeared unphased by the Fed speak, but those hopes were quickly dashed.
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Here’s How I’m Trading This Action
Right now, we have a classic instance of "buy the rumor, sell the news" or in this case, it’s actually “sell the rumor, buy the news” since we’re nearing a true bear market. Traders and investors have lost all confidence that the Fed can engineer a soft landing for the economy as it battles runaway inflation. As such, folks are selling, and selling hard!
I think the market is finally waking up to reality. The easy money party is over for most.
So is a 75-bp rate hike happening in June?
When pressed about a 75-bp rate hike earlier this month, Powell reaffirmed the Fed is data-dependent and that the stock market is not one of the Fed’s priority concerns.
Reading between the lines here, I think we’re at a 50/50 likelihood for a 75-bp hike in June or July, and if that hurts equities, it's just necessary collateral damage.
By the Way, How’s Your Portfolio Doing?
Like most folks, I assume this is a pretty sore subject right now.
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Sean McCloskey
Editor, Energy and Capital
@TheRL_McCloskey on TwitterAfter spending 10 years in the consumer tech reporting and educational publishing industries, Sean has since redevoted himself to one of his original passions: identifying and cashing in on the most lucrative opportunities the market has to offer. As the former managing editor of multiple investment newsletters, he's covered virtually every sector of the market, ranging from energy and tech to gold and cannabis. Over the years, Sean has offered his followers the chance to score numerous triple-digit gains, and today he continues his mission to deliver followers the best chance to score big wins on Wall Street and beyond as an editor for Energy and Capital.
