Displaying items by tag: rate hikes

Goldman and many other Forecasters have upped their projections for the number of rate hikes in 2022, but most are calling for a timid four in order for the fed to better combat inflation. CEO of JPMorgan Dimon, however, sees a much more aggressive Fed. Dimon says the Fed will hike rates six or seven times in 2022, which would bring the baseline FFR up to a whopping 2%. Dimon says 200 basis points used to be an overnight adventure for the Fed during the Volcker administration. Despite these wildly hawkish projections Dimon still sees the fed threading the needle and maintaining a balanced growth path while fighting inflation. Others called Dimon’s projections irresponsible and said the market would suffer greatly for hikes that severe.

FINSUM: There is no way the Fed could hike rates 2% in 2022 and maintain a balanced growth path, however, the Powell Fed bringing inflation back down and not taking the economy is still the most likely outcome, just not under seven rate hikes.

Hedge funds opened the floodgates and entered a firesale on treasuries in response to Powells pivot on inflation. JPMorgan said the selling demonstrates leveraged investors pivoting out of Treasuries. Hedge funds are continually shorting across the futures market, and are now hitting an annual low in U.S. 10-year treasuries futures. The only problem is the tapering hasn’t begun just yet and rate hikes are only in theory. This means hedge funds drastically need the Fed to follow through on a hawkish swing if they don’t want to get hung out to dry.

FINSUM: It would be extremely unlikely the Fed pivots on its tapering. The only way that's possible is if inflation was significantly below target the next one or two quarters.

Jerome Powell and the Fed turned a 180 this week with the future of its asset tapering and interest rate hikes. The Fed sees Covid and omicron as yesterday's demons and have set their sights on inflation. With that the Fed is gearing up for potentially three rate hikes in 2022 and is moving away from the transitory inflation story. This could be bad for bond investors as the Fed’s tune could change if omicron picks up or inflation shifts gears, meaning there is a lot of uncertainty about future rates. Nonetheless, higher rates could undercut existing long term bonds so those still invested in bonds should consider switching their investments to shorter duration Fixed Income ETFs or less sensitive corporate bonds. Lower duration bond ETFs will be more stable when there is interest rate uncertainty (unlike in standard times).

FINSUM: The Fed could just as quickly hop off the inflation fighting hawk train if they get a series of lower PCE reports, which means investors need to be ready for various scenarios.

(New York)

The market was hit hard by bad economic data this week and yet markets barely budged. Consumer sentiment, Chicago Purchasing Managers Index, and Home Prices all swirled a whirlwind of bad news for markets and yet they hardly budged. This is because markets are convinced more than ever that bad news is good news because it will have the Fed kick the tapering can down the road. Powell made it clear that the new Fed environment will accommodate higher inflation and that while tapering might start this year, the Fed is a long way from rate hikes. This means growth-oriented interest rate-dependent stocks will do well as the Fed favors employment over inflation in its dual mandate.

FINSUM: Powell has all but confirmed a slow transition in monetary policy, don’t look for economic data to be the breaking point in your portfolio.