A 25bp Rate Hike in March Confirmed? How to Plan Your Trades?
Powell supports a 25bp rate hike in March at House hearing
At House hearing meeting on Wednesday, U.S. Fed Chair Powell said he would propose a 25-basis-point rate hike at the FOMC meeting in two weeks amid current high inflation, strong economic demand, and a tight labor market.
Powell said: I‘m inclined to propose and support a 25 basis point rate hike, we would be prepared to move more aggressively by raising the federal funds rate by more than 25bp at a meeting or meetings.
Which comment alleviates the market‘s uncertainty expectation on interest rate hikes, the U.S. stock market rose.
The yield on the 10-year U.S. Treasury note rose to 1.862% on Wednesday from 1.708% on Tuesday, the biggest one-day gain since March 18, 2020.
The financial sector was the best performer, recovering about half of their losses earlier in the week, while energy, retail, and other sectors rose.
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Will the 25bp Fed Rate Hike Happen or Still Be Variables?
- Target Rate Probabilities for March 16th, 2022 FED MEETING
Source From CME
- Current Meeting Probabilities
Source From CME
- New Absolute Hawk/Dove Scale
Source From CME
According to CME data, the rate hike is certain, but the attitude of FOMC members is different, and the final result needs to be voted by voting members. Powell stands for 1.5 votes.
Powell said that at present, most Fed officials have expressed their support for raising interest rates by 25bp starting in March and that the Fed will continue to raise interest rates this year, or raise interest rates by 50bp at a later date.
However, Powell said he expected the FED to make good progress in cutting back its $9 trillion balance sheet, but would not finalize a plan related to the March meeting.
Notes: The Fed's next meeting on interest rates will be held onMarch 15-16 local time. Fed officials' latest forecasts for future interest rates and the economy will be released at the meeting, where they will provide a dot plot of their expectations for future rate hikes.
Besides that,The FED's Beige Book released Wednesday afternoon showed that the U.S. economy grew at a moderate pace from mid-January to early February. The Beige Book shows data collected through Feb. 18 showing a sharp drop in new crown cases in recent weeks, with some states announcing the lifting of epidemic restrictions and big tech companies such as Microsoft and Google announcing plans to bring employees back to the office.
In addition, Powell also pointed out that the current Russian-Ukrainian situation, sanctions work, and the near-term impact of a series of geopolitical events on the U.S. economy are still highly uncertain. The Fed typically refrains from taking measures that increase uncertainty during periods of frequent geopolitical events, but with inflation now well above its 2% target and the prospect of higher prices from the situation in Russia and Ukraine, the FED is under policy pressure.
However, the FED's Beige Book released Wednesday afternoon showed that the U.S. economy grew at a moderate pace from mid-Jan to early Feb. The Beige Book shows data collected by Feb. 18 showing a sharp drop in new Omicron cases in recent weeks, with some states announcing the easing of pandemic restrictions and big tech companies such as Microsoft and Google announcing plans to bring employees back to the office.
Therefore, Powell's testimony and the Fed's Beige Book greatly eased the market's uncertainty about interest rate hikes and economic conditions. U.S. stocks rose significantly on Wednesday, with the three major indexes all up 1%, the DJI expanding to more than 520 points, and the Russell 2000 small-cap stocks up nearly 2%.
Question For You：
Fed Chairman Powell supports raising interest rates by 25bp in March. Do you think it will happen for sure or there will be a variable? How will you plan your trade? Stay in a comfortable positions or bo more aggressive?
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The question is how many more to come.
I will continue to buy when valuation is attractive, and it is becoming more attractive the past week.
The markets heaved a big sigh of relief when Jerome Powell said that he proposed a 25bp Rate Hike in March. There is no alternative as inflation is at all time high.
Nonetheless the Feds cannot be too aggressive with interest rates hike as it may cause Stagflation or even worse Recession!
Already the Ukrainian war is causing massive havoc in the markets plus oil prices are already above 110 per barrel!
When the markets are plummeting to all time low, it is a great time to bargain hunt quality stocks like Apple, Microsoft. It is also important to be diversified by investing in bonds, Gold, Real Estate and Cryptocurrencies.
Let's hope a Peace Treaty can be negotiated soon as War will ultimately cause untold hardship especially on the innocent people of Ukraine. 🙏🙏🙏✌️✌️✌️
@Mainstreet_Trades 25bp rate hike in March
@TigerStars
Jerome Powell has spoken - 25bp Rate increase in March and it will happen. The Feds have to show the American people that they are serious about curbing inflation which is the highest in 40 years!
The markets heaved a big sigh of relief today as investors were worried it could have been 50bp increase in interest rates. The US indexes closed higher as a result of this.
The best thing to do is look for stocks that are a great hedge against inflation like defense stocks, bank stocks. Also stocks that have wide moats like Amazon, Apple and Microsoft which can easily pass the increased costs to customers. Amazon recently increased their Prime subscription and customers still paid.
Most importantly to stay invested as inflation will erode the intrinsic value of money otherwise.
@Mainstreet_Trades A 25bp Rate Hike in March confirmed
@TigerStars
Five voting FED members have said recenly they are hawkish (favoured larger faster rate hike) vs two dovish and two in centre (see Reuters graphic below) Powell is one of those in centre and he has stated his intention with 25bp. Will be close call but 25bp will prevail for a FED that does not want to tank Markets. Stock Markets that has corrected and geopolitical crisis might just sway them to do this...
Interest rate hike causes prices to rise (inflation), lower demand, and cool economy that is growing too hot. However, current inflation is not due to hot growth but mainly high cost due to supply chain disruption and manpower cost. So FED likely more prudent with 25bp. Too high hike too soon is likely negative to Markets and cause prices to rise even higher.