Fed vs Market: Who gonna win?
Hi everyone, just share some thoughts regarding to the FOMC's meeting last week:
- Fed's rate hike with 0.25% as expected after considering 1% before the pre-bank-crisis events and 0% for post-events. It's more logical for me than any other option, as inflation is still high, the labor market is still hot, and the economy is still boosted with hyped capital goods from January through February.
- The only things that make me feel confident are the tightening financial conditions at banks and other financial institutions. This showed a dramatic U-turn compared to before the banking crisis, and this is in line with what the Fed wishes for.
- However, looking at the Fed Funds futures, we have some discrepancies between the median of Dot plot (a method of visually representing expectations of the future Fed Funds rate) and the Fed Funds futures. While Fed fund futures are implying a rate easing right in 2023 to around 4.25% and dot plots show expectation from the Fed to keep the rate after one more hike, as Powel said.
- This gap of expectation between the Fed and the "market" out there shows the disbelief in the current situation of the economy in the next few months, especially after the banking crisis in the last 2 weeks. The crowd predicted that the economy would face such severe financial difficulties that the Fed would change its policy.
So who's going to be right? Fed or the Market? Whatever side you choose, make your bets there.
- Fed's rate hike with 0.25% as expected after considering 1% before the pre-bank-crisis events and 0% for post-events. It's more logical for me than any other option, as inflation is still high, the labor market is still hot, and the economy is still boosted with hyped capital goods from January through February.
- The only things that make me feel confident are the tightening financial conditions at banks and other financial institutions. This showed a dramatic U-turn compared to before the banking crisis, and this is in line with what the Fed wishes for.
- However, looking at the Fed Funds futures, we have some discrepancies between the median of Dot plot (a method of visually representing expectations of the future Fed Funds rate) and the Fed Funds futures. While Fed fund futures are implying a rate easing right in 2023 to around 4.25% and dot plots show expectation from the Fed to keep the rate after one more hike, as Powel said.
- This gap of expectation between the Fed and the "market" out there shows the disbelief in the current situation of the economy in the next few months, especially after the banking crisis in the last 2 weeks. The crowd predicted that the economy would face such severe financial difficulties that the Fed would change its policy.
So who's going to be right? Fed or the Market? Whatever side you choose, make your bets there.
I’ve taken a break from my public community engagements to focus on raising my three kids, but I'm rediscovering my passion for working again. Stay connected, as I plan to return and rejoin my old communities with a lot of new skills one day soon.
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