Markets are primed for how Powell will respond to this key interest rate question

How will you play two chess masters at the same time? It’s not that hard, even for someone whose opening game has never really developed after 1.e4. She let a senior master go first, use her move against the second great master, see his response, then use his move against the first head of state, etc.

Likewise, investors are now at a point where they don’t have to know what the Fed is going to do or what Chairman Jerome Powell will say, they just need to know what he’s going to do, and will say, relative to market expectations.

As Ryan Paisey, Market Commentator at persbusput it as follows: “Given how optimistic the vast majority of readings in the FOMC are today, there is a significant risk of disappointment. Many market participants will view Powell’s remotely neutral voice as pacifist. Doves already… Feathers will fly.”

So let’s go through these possibilities, one by one.

Let’s rule out the dovish possibility, frankly. There is a pessimistic case to be made – the Q1 GDP report may not have been as bad as the negative reading indicated, but the US economy is undoubtedly losing steam, and consumer sentiment is down the toilet. However, consumer prices jumped 8.5% year-on-year, and the US labor market added 431,000 jobs last month. It would undermine everything Powell has done since November to start talking about doves now.

Moreover, even after a dreary April in both the stock and bond markets, financial conditions haven’t tightened much. The Chicago Fed’s index of financial conditions, for example, hasn’t even risen above zero yet. “You know, politics works by financial conditions,” Powell told Bloomberg reporter Rich Miller at a March briefing. We need to move our politics to the real economy. And it does so through financial conditions, which means that while we tighten policy or remove residence so that it is at least less favorable, those broader financial conditions will also be less favorable.”

So we expect Powell to prepare the markets for multiple increases of half a pip in the future. But they really are — expectations are that the fed funds rates will be between 3.25% and 3.5% by next March, compared to just 0.3% now. That would be four consecutive increments of half a point, then four more increments of a quarter of a point.

The natural question, given that the Fed is likely to move from a quarter point in March to a half point rise in May, is why not go for a 75 basis point increase in June. Tim Doe, chief US economist at SGH Macro Advisers, said a 75 basis point rise would be a bad move, and the Fed would risk not only appearing in a panic but causing a recession. Connectivity could also become a challenge, as the spikes in these increases will quickly take rates to levels the Fed may want to take its foot off the pedal, before economic data shows a significant slowdown in inflation.

On the one hand, Powell risks sounding more pessimistic by backing away from the 75 basis points forecast, and on the other hand, he may sound too hawkish if he says something like “all options are on the table”. Doi said the inverted yield curve story could return to the scene if the market is satisfied with a 75-point rise in June.

For their part, Nomura’s North American economists led by Aichi Amiya expect rises of 75 points in June and July, although they don’t expect Powell to say so explicitly. “A response that includes a reference to the tightening cycle of 1994, the last time the Fed raised rates by 75 basis points, would be a hawkish surprise, while a suggestion that the 75 basis point hikes are unlikely to be appropriate would be cautious for However, given that financial markets started pricing in a 75 basis point rise in June, we think there is little incentive for Powell to play down the possibility of such a move.

commotion

Fed decision at 2 PM ET, where it is expected to raise interest rates by 50 basis points and also announce its plan to sell bonds, Powell’s press conference at 2:30 PM. No bitmap this time. Nothing really matters until then, but the ADP reported a 247,000 increase in private sector payrolls, while the Institute for Supply Management Services Index is due shortly after the opening.

The European Union proposed a ban on Russian oil imports.

Lyft LYFT,
-33.52%
Shares were down 26% in pre-market trading as the passenger carrier said it would pay drivers more to meet demand, which would affect profitability. uber competitor uber,
-8.32%
It lost more than expected, but posted stronger-than-expected revenue as total bookings rose 35%.

AMD Advanced Micro Devices,
+ 2.83%
It rose 7% after the microchip maker expected annual revenue well above estimates. Airbnb ABNB,
+ 2.28%
It also gained ground as the accommodation booking company beat earnings expectations.

our modern flexible,
-0.33%
Stocks jumped as earnings beat expectations.

Elon Musk thought companies and governments might have to pay to use Twitter TWTR,
-0.55%And
The Wall Street Journal also reports that Musk may make Twitter publicly available again in a few years.

markets

US stock futures ES00,
+ 0.27%

NQ00,
-0.02%
Tipped higher, after the second straight day of gains for the S&P 500 SPX,
+ 0.14%.
CL.1 oil prices,
+ 5.35%
It rose after the proposed European ban on Russian imports. The 10-year Treasury yield is TMUBMUSD10Y,
2.985%
He held less than 3%.

The most important indicators

Below are the most active stock market ticker symbols on MarketWatch as of 6 AM ET.

ribbon

Safety name

TSLA,
-0.50%

Tesla

GME,
-0.91%

Jim Stop

AMC,
-2.13%

AMC Entertainment

AMD,
+ 2.83%

Advanced Micro Devices

NIO,
-2.94%

New

AMZN,
-2.57%

Amazon.com

NVDA,
-2.60%

nvidia

Baba ,
-2.56%

Ali Baba

FB,
+ 0.85%

ID pads

Mullen,
-8.32%

Mullen Cars

random readings

Comedian Dave Chappelle was attacked during a live show at the Hollywood Bowl in Los Angeles.

A fake priest spoke on his way to the Windsor Castle Barracks.

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