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About As Expected – With Hawkish Statement

The pause in rates was as I expected and the hawkish statement was also mostly as I expected. Although the hypocrisy of the statement – with numerous members expecting to see a need for further rate hikes, never ceases to amaze me.

For years these folks have made policy errors which were obvious – zero rates for years even when inflation started to roar – and now they (some members) think they have the ability to foresee the future – where did data dependency go?

My worry with the super hawkish statement is how many more banks will be seized – of course I am ‘talking my book’ since I own numerous banks without current financial information as to how they are performing which turns things into something of a crap shoot – I guess that is the ‘risk/reward’ and all of us know full well that there is plenty of risk in most banking issues. I had already pulled away from buying more bankers and this certainly will temper my desire to own incremental shares.

5 thoughts on “About As Expected – With Hawkish Statement”

  1. I would note that the Fed is well aware of the base effects and the fact that CPI will be lower and down to 3%ish next month and that certain factors like housing/rent are destined to make the reported CPI come down over the coming months….but Jerome explicitly stated that core inflation has been basically flat at 5% for the last 6 months, and that is what is driving the idea that they will need to keep raising. So we will see what happens with that. To some extent they are also just talking tough in order to keep financial conditions from loosening. For example, if they would have said the terminal rate is 5.1% in 2023 and then 2024 will be 4% (or whatever), then the equity markets would take off and bond yields would plummet, thereby loosening financial conditions and undoing the work the Fed has done to tighten. So they have to keep talking tough in order to not loosen conditions. That said, how the data evolves over the next few months will be the determinative factor, not what the Fed says today.

  2. Since they erred in one direction, apparently they feel compelled to err in the opposite direction. However, I don’t think they’ll hike in July in light of today’s PPI and a CPI in July which is likely to be 3.0-3.1. 5% worth of hikes should get time to marinate.

      1. Market tends to drop AFTER the Fed pauses / cuts. The idea that we will continue to rise AFTER the Fed changes course isn’t supported by the data. Before the Fed pivot is the typical bear market rally.

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