To The Moon

The headline was my thoughts on watching the rate hike press conference last night. There is much to be learned from watching the FOMC live in its entirety. The information content of video is much higher than that of written media. For example, if you watch the live broadcast, you can understand the logic behind why the market changes dramatically from the day of the conference to the day after.

Of course, the gains don't stop there. Here are the extras for the live stream, including views on where the stock market is headed and the path of rate hikes.

Attitude is more important than data

Yesterday's press conference was divided into two parts: the rate decision at 2:00 and Powell's press conference at 2:30-3:30.

As the chart shows, the distinction is clear: at 2:00 the stock market immediately fell after the interest-rate decision was announced. Stocks rebounded after Powell began his news conference. When the conference ended an hour later, shares plunged again.

The move after the 2:00 statement is easy to explain: while the 75bps hike was in line with market expectations, the Fed broke the 50bps hike it had been communicating. Markets interpreted it as hawkish and share prices plunged. (Link to original statement)

The point is why did the market continue to rise during the press conference? After Powell took office, stock prices were observed to be a constant response to Powell's attitude and rhetoric. (Opening address link) (video link)

After the 2:00 announcement, the market wants more information from the press conference on the current situation and decisions, including but not limited to:

• Why choose to raise interest rate 75BPS?
• Will 75BPS be the norm?
• Can raising interest rates by 75BPS effectively control inflation?
• Is inflation out of control?
• The Federal Reserve's stance on current inflation
• What is the state of the US economy?

Issues surrounding inflation and monetary policy are much more important as a guide path than just the release of data.

To get the answers they want, the market is reading too much into Powell's body language, his tone of words, the number of times he uses important words and so on.

If you watch the live stream and the stock market together, you'll see that every time Powell makes a "dovish" statement about monetary policy or a negative statement about the dire state of affairs, the stock price jumps.

The overall impression is that Powell is not the Fed chairman directing the market from the podium, but the market is pushing Powell into a corner and forcing him to say something.

Powell was passive in the performance of his duties on what the market wanted to know:

1. The 75Bps rate hike has never been a priority for the Fed, and this time it was chosen because of the poor CPI data.
2. High inflation is caused by uncontrollable causes: epidemics, energy.
3. After that, the interest rate hike is mainly based on the economic data (CPI), and 75BPS is not the priority option.
4. Don't want the rate hike to affect the economy and stock market, but still optimistic about the U.S. economy.

The narrative tied together at 1234 is that the Fed is not taking action this time, it's more like saying: YOU want me to raise rates, I'll raise rates. But raising rates won't help much now, because the causes of high inflation are beyond control. Fed doesn't want to hike 75Bps but the data is so ugly it has to be added. So while the Fed is not inclined to add 75Bps next time, a higher base rate hike is not out of the question if CPI data is not good. The Fed doesn't think raising rates will hurt the economy or the stock market, and it doesn't want to play hardball with the market. The U.S. economy is still doing well.

A good-natured statement so effective, the market is bullish.

The impression I got from this broadcast was that Powell wanted to be an ordinary economic bureaucrat, delivering steady policies, and not want to go down in history. But unfortunately he caught up with a vigorous era.

Next rate hike

The Fed has been very passive about raising rates. The rate hike path communicated 100 times before is not as useful as the CPI data of that month. If CPI data is not good, then how much rate increase, all depends on the market. You can add as much as you want from the Fed, very obedient.

Is the U.S. economy optimistic?

Powell's solution to the current U.S. economy is to let time take care of everything, because what is blocking the U.S. economy are additional factors beyond his control. Powell still sees no problems with the economy and offers no insight.

Trade direction

At 3:30 Powell finished his press conference, the good guy stepped down, and the stock market turned down.

Markets find an undecided policymaker more frightening than a hawk. It's not that the market looks at Powell, it's that Powell looks at the market, and the scary thing is not lower than expected, but not at all. If the next CPI data continues to explode and the market is pricing in a 100bps rate hike, won't Powell do exactly as well?

If the policy path is as bottomless as this, I don't believe the market will expect a particularly strong rebound until the next CPI data release (probably on July 10). If you do not want to short, do not recommend these days long. Let's see where this dip goes first.

"Be careful Tesla's huge put order" can only say that put traders know Powell's personality very well.