The Biggest Rally After Rate Hike! 4 Key Takeaways Tell You Why

The Fed announced the largest rate hike-50bps in 22 years, and the stock market recorded the biggest rally after FOMC's rate hike news in 44 years.

4 Key Takeaways of FOMC Meeting

• Powell's harsh rhetoric on inflation ("attentive", "much too high") had intimidated the market. But then Powell removed the market's concerns by making it clear that the committee was not considering a 75bp rate hike.

• Powell added future data benchmarks for Fed's direction - the job vacancy's rate and the unemployment rate. The non-farm payrolls data will be the new incoming indicator for investors to observe Fed's move.

• Powell showed great confidence in a "soft landing", arguing that there won't be recession as things stand.

We are currently in a wonderful "sweet spot": hawkish expectations have been priced in; rate hikes and balance sheet runoff have landed; there is no sign of the market recession. All these factors combined contributed to the unprecedented rally after rate hike news.

Market performance

Stock: market went down and then up

Dollar and US bonds: they went up and then down

Gold and Bitcoin: they went down and then up

Crude oil: it remained strong

Change point of these trends: Powell disapproved 75bp rate hikes

Wallstreet Tiger Notes: In terms of asset performance, risky assets fell slightly after the statement was released, fell further due to Powell's inflation language (almost the moment much too high popped up), and then rose quickly after Powell disproved the 75bp hike.

Details of Balance Sheet Runoff

The Committee intends to reduce the Fed's securities holdings in a predictable manner over time, primarily by adjusting the amount of securities held from the System Open Market Account (SOMA) that are reinvested after principal repayment. Since June 1, principal repayments on securities held from SOMA will be reinvested when the monthly cap (caps) is exceeded.

• For Treasuries, the cap will initially be set at $30 billion per month and will increase to $60 billion per month after three months.

• For agency debt and MBS, the initial cap would be set at $17.5 billion per month and would increase to $35 billion per month after three months.

Over time, the Committee intends to maintain securities holdings at the amount needed to efficiently and effectively conduct monetary policy in its ample reserve system.

The Committee stands ready to adjust any details of its approach to reducing the size of its balance sheet in light of economic and financial developments.

Highlights of Powell's Speech

1. "The labor market is extremely tight, and inflation is much too high. /Inflation is much too high, and we understand the hardship it is causing."
2. "There is a broad sense on the committee that additional 50 basis point increases should be on the table at the next couple of meetings. 75 basis point increase is not something the committee is actively considering."
3. "I would expect though that job creation will slow, job creation has been at more than a half million per month in recent months, very very strong, particularly for this stage of the economy.And so we think with fiscal policy less supportive, monetary policy less supportive we think job creation will slow as well."
4. "Nothing about it suggests that it's close to or vulnerable to a recession. As I said, I think we have a good chance to restore price stability without a recession, without a severe downturn and without materially higher unemployment."

---

What's your opinion on Fed's move?

Are you hawkish or doveish?

Share your opinions in the comment section!