It’s been quite a morning!
The S&P 500 fell about 40 points yesterday (1%) and we recovered half into the close and now another 10 points since midnight – when no one was looking – or trading. Also, the Dollar dropped 0.3% since midnight, which is ALL the reason for the index pop. There’s a growing consensus that the Fed will NOT raise rates but I’m still looking for a 0.25% increase – so things are going to be interesting later.
The elephant that is still in the room is Inflation. Recent data has shown signs of Inflation heating up, and the Fed has been under pressure to address this issue. This is where game theory comes into play: The Fed must weigh the consequences of its actions carefully. If they hold rates steady now and Inflation continues to worsen, they may find themselves in a precarious position, forced to implement a more significant 0.5% rate hike at the next meeting. This would limit their flexibility and potentially roil the markets.
So, the question arises: What’s the best move for the Fed in this situation? My view is that a measured approach makes sense. A 0.25% rate increase now would allow the Fed to show they are taking inflation seriously while still preserving some maneuvering room for future meetings. It’s a strategic move that would grant them the flexibility to make smaller adjustments as needed, avoiding abrupt market shocks and maintaining stability.
As we await the Fed’s decision and Powell’s press conference later today, the tension in the financial markets is palpable. The fate of interest rates hangs in the balance, and the Fed’s choice will undoubtedly have ripple effects on various assets. So, stay tuned, and be prepared for whatever twists and turns this day may bring. In the world of finance, surprises are often the name of the game.
Although we got a nice pullback today, Oil (/CL) prices are still up 10% in September and nothing drives inflation like Oil does and the Fed can’t be happy with where it is. Raising rates will push the Dollar higher and lower Oil prices a bit (much to the chagrin of countries who are already trying to push the Dollar lower) and that’s another balancing act Powell will have to play.
Not much to do but wait and see what happens this afternoon – should be interesting and we’ll be covering it in our Live Trading Webinar, which starts at 1pm (Members Only).
