Fed raised 0.75% as expected but markets slumped. Why?
The Fed raised the interest rate by 0.75% which was expected but the S&P 500 reversed course and closed down 2% for the day.
Shouldn't the market have already priced in this rate hike?
Yes, the market has priced in the current rate hike but it has not priced in the future rate hikes.
There was a shift in the expected rate hikes after the last Fed meeting. So the market adjusted for the new piece of information.
Markets are forward looking.
This is where we look at the Fed's dot plot - a chart that records each Fed official's projection for the central bank's key short-term interest rate.
In June, the median 2022 year-end projection was 3.4% while for end-2023 was 3.8%.
The dot plot released yesterday showed that the expectation has risen. End-2022 projection rose to 4 - 4.5% while end-2023 saw 4.5 - 5% estimates.
There's also no easing of interest rate until 2024.
A very quick escalation considering only 3 months have passed.
While the accuracy of the dot plot is a suspect, it does signal how increasingly hawkish the Fed has become which brings about more recessionary fears to the markets.
It doesn't help when the Fed chairman's language was harsher than previous speeches. The term 'soft landing' has been ditched and Powell replaced it with 'some pain'.
He said, "higher interest rates, slower growth and a softening labor market are all painful for the public that we serve, but they're not as painful as failing to restore price stability."
It is also going to be painful for growth stocks for the next few years too.
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- StreetCat·2022-09-23Previously raised interest rates but cpi and inflation is still high. How will another hike help? Every 3 months raise 0.75% and pray? Why not source for cheap energy alternatives to solve the transport issue to alleviate rising cost of goods and open bilateral trade? Raise interest rates also makes their usd even stronger and the whole world is using usd to trade globally. Prices of things will only go up till it is unaffordable...LikeReport
- Slsebast·2022-09-23Thanks for sharing. Many will just assumed thay market have priced it in but the fear of recession does have an effect on people as well6Report
- powerbert·2022-09-23Thanks for the information, now I know why the market is dropping.7Report
- skiing·2022-09-23Thanks for sharing. Expectations are really killing the market6Report
- ChristKitto·2022-09-22I keep investing in stocks every month as they go down. That strategy makes sense for long-term investors who have the time to suffer over the next few years until they can enjoy the inevitable recovery of stocks.3Report
- EugeneKopi·2022-09-23Expected , wait for reboun d6Report
- Big Little·2022-09-23Long story short - markets are still going down south...5Report
- Ericdao·2022-09-22Powell job is simple. Control inflation. Economy not his problem now [LOL]5Report
- Snakewood·2022-09-23🤷♂️🤷♂️🤔 market expects more rate hikes?? 🤦♂️🤦♂️4Report
- YeddaJohnson·2022-09-22They can't get the well control of the inflation.The market is losing hope.4Report
- 小辉goPro·2022-09-23why's? are we ready for rebound or recession?2Report
- All in Tesla·2022-09-23More pain to come 🤔4Report
- Mkoh·2022-09-23adjusting downwards4Report
- Ruiqing·2022-09-23全球经济衰退4Report
- littlesweetie·2022-09-22Since rising interest rates mean lower stock prices, it is quite painful for me that the Fed will keep hiking interest rates.To make my pain go away, I could sell all my stocks so they would stop going down.LikeReport
- MTjondro·2022-09-23I think, in this current condition market is price in. But we should wait and see to look that interest rates are rocketing sooner. So, current valuation maybe overvalue soonerLikeReport
- Doge2theMoon·2022-09-23Market had mistakenly expected Fed to pivot. Fed has to give a clear message and set a correct expectation. Pain is used once in Jackson hole speech and again this week. 😨LikeReport
- LWayne·2022-09-23don't have to think too much of why, market is going down, that's all2Report
- Weiss·2022-09-23thanks for sharing!3Report
- highhand·2022-09-22Slumpdog millionaire coming up3Report