How Fed Rate Hikes Influence Markets

How Fed Rate Hikes Influence Markets

Mr. J to the Pizzo just announced a 25 basis point rate hike, which is the second time they have decreased the velocity at which they are increasing rates. Over 90 percent of the market actually expected this 25 basis point rate hike, but we are not in the clear yet. Jay Powell, who is the Federal Reserve chairman, said that there will be ongoing hikes because they will be appropriate. This is because inflation has eased somewhat but remains elevated and they will continue to do their job until they reach the targeted two percent inflation rate.

Now, there was a further discussion after he announced the 25 bps rate hike. Someone asked the question, “Okay, what if inflation is coming down very, very quickly?” He then said, “hey, if it’s going down very quickly, we will potentially consider changing our policy, which would then hint at a potential pivot sooner than inflation and CPI coming down to the target level of two percent.”

They also mentioned that the jobs market has been extremely strong, with 247,000 new jobs added on average per month over the last three months. Powell believes that in order to bring down inflation, there will have to be a below-trend growth and a weaker job market. He is alluding to pretty much what a typical recession is; you see a weak job market, but that’s usually a lagging indicator, and then you also see lower GDP growth, which again is a recession. So, he’s pretty much hinting at the fact that he really does believe there’s going to be a recession.

Despite this, the markets are acting very positively. The S&P 500 is extremely strong today, breaking out past this previous high. This is a big deal. Not only are they confirmed out of the broadening descending wedge they’ve been in for an entire year, which is typically a bullish pattern, but they’re also starting to confirm. The dollar is continuing to fall, falling well below this level, and the euro is skyrocketing relative to the dollar over 110. It’s very obvious that there is a massive pump in the markets.

The author of this text also mentions that they put a thread on Twitter about being bullish on the markets over this quarter and potentially through the summer. They are long on Bitcoin and give 10 reasons for their bullish outlook…

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