25bp CUT Equity markets rally sharply. The US Dollar collapses down through 2004 lows. The Yen stages a massive rally, taking some steam off the SP, which nonetheless, eclipses all-time highs by a few points. Bond have a knee jerk reaction: rallying prices and falling yields are quickly reversed into sharply falling prices and rising yields. This baffles everyone, and as bonds gain steam to the downside, (rates rise sharply), the US stock market begins to lose froth and finally begins to fall. Imagine the talking heads pumping stocks, making new highs, rates are down, real estate is going to be fine, money is cheap, and so are stocks...Joe Shmo gets in at the top - AGAIN... 25bp RISE Bond markets collapse, equity markets collapse, housing shits all over itself. But this is good news, right? We are raising because the economy is good! We just need to take some coal out of the engine - it's getting too hot. The US Dollar is the benefactor, rising significantly, specifically since the Fed's bias has now changed from "tight-light" to 'Tight". As the Buck rallies, energy prices fall hard, adding further pressure to the major stock indicies. So many scenarios are possible...it's the true genius who can put the pieces of the puzzle together while they are still strewn all over the table.
The effect of a hike would only buoy the dollar for a few days at most until people realized how stupid it would be to hike rates as the economy slips into a recession. Of the 88,000 jobs created, 317,000 (a new record) were created by "adjustment", not reported, including many construction and service jobs. The household survey nobody mentions showed a 498,000 job loss for the month. That one is determined by actually calling people and seeing if they are working or looking for a job, or retired, etc. Lowering rates would be just as nutty. You already have lunatic levels of debt fueled speculation driving asset prices to the sky as people desperately try to find things to invest in. End result: My guess is they talk tough on inflation, are sympathetic to the industries already in recession, and do absolutely nothing.
Oh I agree...they do nothing...that's 99.9% likely.. I'm just pondering what a surprise cut (dumb) or hike (necessary, I think) would do..
The market's already expecting the Fed to leave rate alone. However, what the market wants is some kind of hints of possible rate cut/increate in the future. Market prefers rate cut, but our friend Benny will probably not give any hints b/c of current inflation concerns. I believe the market is going to be disappointed on Wed and will probably consolidate.
Everyone knows that the market expects no change NOW.. deferred ED's are saying 3 rate cuts of 25 bp by end of next year... HOGWASH, I say...