What Wall Street thinks of the Fed’s latest moves
What has the Fed decided and what have been the reactions of the American markets. The comment by Giuseppe Sersale, strategist of Anthilia Capital Partners Sgr
The Fed statement reported the following "news":
- doubling of the tapering rate to 30 bln per month (20 of bonds and 10 of mortgages), and therefore a zeroing of net purchases in March, if no new changes arrive.
- dot plot passed to indicate 3 increases in 2022 and another 3 in 2023, but only 2 in 2024, with the point of arrival at 2.125%.
- the concept of transience of inflation has been removed, in favor of an "imbalance between supply and demand".
- inflation forecasts have been raised to 2.7% for 2022 (from 2.3%) and to 2.3% in 2023 (from 2.2% 9 while that for 2024 has remained unchanged, and continues to discount 2.1%, close to the target.
In general, a Fed that decides to raise rates more in the next few quarters, convinced that this will allow it to raise them less in the future, because it will control inflation, which will return docile to the objective (best wishes).
The market, after a first discard, had the classic reaction of those who expected worse, which then, in practice, is the effect of operators already tactically positioned for a hawkish outcome , who therefore have nothing more to do once. that this is confirmed.
Perhaps the caution in 2024 in terms of hikes has enhanced this effect.
The Fed had no idea how much inflation would rise in late 2021, and how many hikes it would expect to do at the end of the year, and we should think that they know how many they will make in 2024?
The truth is that the feeling remains intact that Powell and C. will be forced to chase next year, and that the market will soon re-establish a difference with the FED projections, which today, at least for the next 24 months, have been forced to adapt.
At 20.30 in the conference a handsome optimistic Powell showed up. They had to accelerate on tapering due to high inflation. The economy will grow at a robust pace and full employment will be reached in 2022. The Fed must act to prevent inflation from taking root (and not inc … the Democrats in the House) and then rates will be raised, after the end of the year. tapering (so not in March, unless they speed up), but not long after. The Omicron variant poses risks, but the economy can handle it. Variant after variant you learn to live with the virus.
* POWELL CITES ELEVATED INFLATION FOR SPEEDING UP TAPER
* POWELL: ECONOMY ON TRACK TO EXPAND AT ROBUST PACE THIS YEAR
* POWELL: ECONOMY MADE RAPID PROGRESS TOWARD MAX EMPLOYMENT
* POWELL: EMPLOYERS HAVING DIFFICULTIES FILLING JOB OPENINGS
* POWELL: UNCLEAR HOW LONG LABOR SHORTAGE WILL PERSIST
* POWELL: WAGE GROWTH HASN'T BEEN MAJOR CONTRIBUTOR TO INFLATION
* POWELL: HIGH INFLATION IMPOSES SIGNIFICANT HARDSHIP ON PEOPLE
* POWELL: WILL USE TOOLS TO KEEP INFLATION FROM BEING ENTRENCHED
* POWELL: EXPECT ECONOMY TO REACH MAXIMUM EMPLOYMENT GOAL IN 2022
* POWELL: EXPECT A GRADUAL PACE OF POLICY FIRMING
* POWELL: TAPER TO END A FEW MONTHS EARLIER THAN PRIOR PLAN
* POWELL: ON TRACK TO END TAPER BY MID-MARCH
* POWELL: WE'RE TWO MEETINGS AWAY FROM FINISHING TAPER NOW
* POWELL: ECONOMY NO LONGER NEEDS RISING AMOUNTS OF SUPPORT
* POWELL: WE ARE MAKING RAPID PROGRESS TOWARD MAX EMPLOYMENT
* POWELL: YES, WE WON'T RAISE RATES UNTIL AFTER TAPER FINISHED
* POWELL: DON'T FORESEE LONG DELAY BETWEEN TAPER, RATE HIKE
* POWELL: FED COULD HIKE BEFORE REACHING MAXIMUM EMPLOYMENT
* POWELL: LABOR MARKET HOTTER IN SOME WAYS THAN LAST EXPANSION
* POWELL: COMFORTABLE THAT ECONOMY CAN HANDLE OMICRON
* POWELL: RECENT RISE IN COVID CASES, OMICRON POSE RISKS
* POWELL: WAVE UPON COVID WAVE, PEOPLE LEARNING TO LIVE W / COVID
* POWELL: AMERICANS 'INCOMES ARE VERY STRONG
* POWELL: HOLIDAY SPENDING MAY HAVE BEEN PULLED FORWARD
* POWELL: BUSINESS DEBT HIGH BUT DEFAULT RATES ARE VERY LOW
Powell's latest statements show the extent of the inflation turnaround: it's demand-driven, driven by fiscal stimulus (modestly, I've been supporting it for a while), and it's clear the risk of it taking root and becoming persistent. But – beware – the Fed is not late. With interest rates at zero, QE still heavy, inflation over double the target and companies struggling to find workers. Mah?
* POWELL: STRONG DEMAND, SUPPORTED BY FISCAL, BOOSTED INFLATION
* POWELL: THERE'S A REAL RISK INFLATION MAY BE MORE PERSISTENT
* POWELL: RISK OF ENTRENCHED INFLATION HAS CERTAINLY INCREASED
* POWELL: WOULDN'T SAY WE'RE BEHIND THE CURVE ON INFLATION
The stock market reaction to Powell's optimism is euphoric, with the S&P currently recovering well over 1% back towards the highs. We will see how long this reaction will last. But it is worth noting that the FOMC outcome nonetheless constitutes a shift towards greater proactivity, that the bar to stop is very high, and that estimates of Omicron's impact are still at the hypothesis level.
How much the market had prepared for this tightening can also be seen in the $ correction, the rebound in oil and crypto. Of course, at the FED they have become magicians in preparing the markets for their moves with the result that they have the opposite effect in the short term. But then the effect of the moves unfolds on markets and the economy.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/conferenza-powell-fed-tassi-inflazione/ on Thu, 16 Dec 2021 06:44:16 +0000.