To The Moon

If you have been following the news, there have been a lot of public engagements for the Fed’s tip official. One thing that I observe is there have been an intensifying debate going on whether to continue the hike again or pause at the upcoming June meeting.

2 different camp of thoughts

I personally feel that as investors we would need to prepare our strategy around how to be able to continue to trade whichever direction it might go.

Concerned that inflation is not cooling fast enough

Some officials are concerned inflation is not cooling fast enough. This one I can understand that as we are still pretty far from the 2%.

This is my argument, if previous rate hike is showing the results over the past few months. What we do not want to ride on the momentum to continue to bring inflation down further.

If we look at the most recent rate hike in May 2023 meeting, and the banking crisis we faced in March. Did the economy perform badly? And even with the debt ceiling issue facing the U.S. now.

Here is how the economic data have stacked up.

Employment are still growing, wages are not falling badly. Consumers though are suffering from higher food prices. All these seem to be manageable.

Like Fed Chari say on Friday “So far, the data continue to support the committee’s view that bringing inflation down will take some time,”

I would believe that if the demand have been really eroded from from tighter credit conditions and the lagged effects of rising interest rates, then that would call for a reason for pause in the upcoming June FOMC meeting.

Remain open to pausing the hike

Those officials who did not express concerns over credit conditions deter deteriorating sharply. So some actually are open to pausing.

But if we take a look at how things are moving, with rate hike so far (market have been adjusting and factoring these rate hike).

So will we really see a significant drop in demand? Is there really lagged effects of rising interest rates?

The lagged effects might be true for the 1st few rate hike in 2022, but I think those following hikes do have some effect on bringing down inflation.

How should we position our trading strategy?

Personally, I have already put on a strategy to include defensive stocks in my trading plans. I will also focus on looking at the PCE data on 26 May 2023.

This PCE data would be important to me as it will tell us how market and Fed would feel whether rate hike have taken effect properly.

So Fed does not really need to skip a hike but rather go for a smaller percentage point of hike (e.g. 10 basis point).

Appreciate if you could share your thoughts in the comment section how would you be trading if there is a rate hike skip in June 2023,

Do like, share and comment on this article if you find this trading thought useful.

@TigerStars @Daily_Discussion appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.