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Markets across all major indices looked headed for their second straight robust trading session today, but tacked south on comments from Atlanta Fed President Raphael Bostic, who essentially reiterated what Fed Chair Jerome Powell has been saying for the past year: the U.S. Federal Reserve is prepared to go higher and longer with interest rates, even at the risk of tipping into recession. The Dow and S&P 500 closed lower on the day, -0.34% and -0.08%, respectively. The Nasdaq stayed afloat, +0.63%, as did the Russell 2000, +0.17%.
Bostic went so far as to say the Fed was willing to overshoot on interest rates in order to win the battle against inflation, as willing to keep rates high through 2024. He wouldn’t go so far as to say a 50 bps increase on February 1st — which would bring the Fed funds rate to 4.75-5.00% — was a lock; he suggested that if economic data like CPI are down considerably, then perhaps a 25 bps hike would be more likely.
When asked how long the Fed would keep rates above 5% in our current economic scenario, Bostic said, “A long time.” This says a lot and not very much at the same time. Obviously, beyond the sketch of the dot-plot outline, the Fed does not know when it will augment policy, but it does firmly reiterate the general concept of keeping inflation in a stranglehold until it is certain not to re-emerge is unwavering.
That CPI data, by the way, is due out Thursday morning, with a 12-month low on core year over year expected. That would be a good sign indicating Fed policies have done an admirable job slowing landing the inflation balloon; a big drop might suggest something has snapped — and that’s when we might start to expect to see the Fed reconfigure its projections. But December, the key month of holiday shopping season, likely has too much pricing static to represent something so stark. So don’t start dreaming of 25 bps just yet.
After last week’s flurry of economic data, we’re in a pause ahead of Q4 earnings season, which “begins” later this week (Zacks Director of Research Sheraz Mian can argue earnings season has already begun, with large-cap signifiers like FedEx (FDX - Free Report) and Nike (NKE - Free Report) already having reported), so we’re back to “idle hands (or market participants) are the devil’s work,” like we were a month ago. It won’t be long til we’re back onto actionable news items. Stay tuned!
Image: Bigstock
Fed's Bostic Stays Hawkish, Tempers Market Rally
Markets across all major indices looked headed for their second straight robust trading session today, but tacked south on comments from Atlanta Fed President Raphael Bostic, who essentially reiterated what Fed Chair Jerome Powell has been saying for the past year: the U.S. Federal Reserve is prepared to go higher and longer with interest rates, even at the risk of tipping into recession. The Dow and S&P 500 closed lower on the day, -0.34% and -0.08%, respectively. The Nasdaq stayed afloat, +0.63%, as did the Russell 2000, +0.17%.
Bostic went so far as to say the Fed was willing to overshoot on interest rates in order to win the battle against inflation, as willing to keep rates high through 2024. He wouldn’t go so far as to say a 50 bps increase on February 1st — which would bring the Fed funds rate to 4.75-5.00% — was a lock; he suggested that if economic data like CPI are down considerably, then perhaps a 25 bps hike would be more likely.
When asked how long the Fed would keep rates above 5% in our current economic scenario, Bostic said, “A long time.” This says a lot and not very much at the same time. Obviously, beyond the sketch of the dot-plot outline, the Fed does not know when it will augment policy, but it does firmly reiterate the general concept of keeping inflation in a stranglehold until it is certain not to re-emerge is unwavering.
That CPI data, by the way, is due out Thursday morning, with a 12-month low on core year over year expected. That would be a good sign indicating Fed policies have done an admirable job slowing landing the inflation balloon; a big drop might suggest something has snapped — and that’s when we might start to expect to see the Fed reconfigure its projections. But December, the key month of holiday shopping season, likely has too much pricing static to represent something so stark. So don’t start dreaming of 25 bps just yet.
After last week’s flurry of economic data, we’re in a pause ahead of Q4 earnings season, which “begins” later this week (Zacks Director of Research Sheraz Mian can argue earnings season has already begun, with large-cap signifiers like FedEx (FDX - Free Report) and Nike (NKE - Free Report) already having reported), so we’re back to “idle hands (or market participants) are the devil’s work,” like we were a month ago. It won’t be long til we’re back onto actionable news items. Stay tuned!
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