Fed’s July and future plans and potential impact

AlexTeddySG
2022-07-02

The 75 basis point (bp) move in June was aimed at reinforcing the Fed’s message that it is indeed nimble and trying to get ahead of the curve on inflation. The Fed essentially indicated it will have a “single mandate” for the foreseeable future, with the focus squarely on headline inflation. The updated dot plot now shows the 2022 year-end policy rate at 3.375%—a cumulative increase of 175 bps over the remainder of the year. While Fed Chair Jerome Powell noted that a hike of 50 or 75 bps is most likely at the next meeting, I think the Fed will continue to frontload with a 75 bp hike in July (and 50–25–25 thereafter). Moreover, if June inflation and July inflation expectations surprise to the upside and markets smoothly price in another 75 bp hike, the Fed will once again lean into market pricing since there will hardly be any element of surprise to a hike of that magnitude. If anything, a 50 bp hike, when markets have priced in more, could make the Fed look tame on inflation. Lastly, the sooner the Fed gets to neutral, the greater the optionality it has on the speed of tightening going forward.

So how is this going play out next few weeks?

I believe, next week markets will start with a 5-7% upswing followed by a 2.5-4% dip before fed hike. Post hike (July17), there will be bear market bull run for 2-3weeks followed by a reversal. $SPDR S&P 500 ETF Trust(SPY)$

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Comments

  • SvipS
    2022-07-02
    SvipS
    Interest Rate ongoing increased is not a main issue if Corp performance also increased as needed. Essential still needed even with price increase. Just that luxury item will be reduced. [shy]
  • MortimerDodd
    2022-07-03
    MortimerDodd
    Hopefully Powell will be more moderate in the future.
    • AlexTeddySG
      Thanks. I wish too similar, more sensible rather acting less or acting more. 😀
  • PandoraHaggai
    2022-07-03
    PandoraHaggai
    Thank you for your analysis. It was very helpful to me.
  • ElvisMarner
    2022-07-03
    ElvisMarner
    It seems that you know a lot about macroeconomics.
  • JSQ
    2022-07-03
    JSQ
    Got to keep inflation down. Feb got to do what it need to do
    • JSQReplyAlexTeddySG
      ya interest rate will most likely going up again to keep inflation down
    • AlexTeddySG
      Thanks. Just that I m scared that Fed will over do it. 😀
  • Maria_yy
    2022-07-03
    Maria_yy
    Thanks for your excellent post.
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