The old joke goes like this: Two friends at the resort, one says, “The food here is really bad.” The other replies, “And the portions are too small!” Today, it’s investors who don’t like the Fed raising rates Taste, but seems to want more anyway.
Markets have tumbled over the past month as the Federal Reserve cabled that it would raise interest rates by half a percentage point on a regular basis for the foreseeable future in response to continued inflationary growth.Wednesday, the Dow
(India) Down more than 1,000 points, the broader market fell 3.6%, the S&P 500
(SPX) On the edge of a cliff in bear market territory.
Now, investors are asking for more.they are Call for rate hikes by three-quarters At the end of the Fed’s June meeting, despite assurances from Fed Chairman Jerome Powell that such high gains would not be taken into account.
Analysts at Bank of America wrote in a note that they were concerned that the U.S. could soon experience a wage price spiral due to the risk of “too few rate hikes by the Fed.” The current market reaction, they say, shows that “investors believe the Fed is moving too slowly in the fight against inflation: 75 [basis point] Some may be concerned about rate hikes, but seem to prefer them. ”
Nomura has forecast that the Fed will raise the federal funds rate by three-quarters of a point in June and July, following a half-point hike in May.
Rob Subbaraman, head of global operations at Nomura Securities, said: “We recognize that Fedspeak has not fully supported a 75 basis point rate hike, but in this high inflation scenario, we believe the nature of the Fed’s forward guidance has changed – it has become more Rely on data and be more flexible.” Market Research, in note.
The chief economist at Deutsche Bank said the Fed may raise interest rates to 5% when it ends the current round of tightening. That would be the highest level since 2006.
Fed funds futures traders see a 9% chance the Fed will raise its main policy rate target by three-quarters of a point in June to between 1.5% and 1.75%. CME FedWatch Tool.
St. Louis Fed President James Bullard sparked flames of possible three-quarters rate hikes this year in public speech, Cleveland Fed President Loretta Mester told Japan’s Nikkei In an interview on Monday, a 0.75-percentage-point rate hike later this year could not be ruled out.
So why is the market fighting the Fed chair’s assurances that there won’t be a bigger rate hike in June — and hurting itself by predicting it?
“When Fed officials suggested a 50 basis point hike, the market immediately started trying to price in a 75 basis point hike,” said Jamie Cox, managing partner at Harris Financial Group. “It’s crazy.”
The Dow is down 3,930 points or 11% in 2022. The S&P 500 fell nearly 14% and the Nasdaq Composite fell more than 25%.
“Powell tried to cancel a 75 basis point rate hike at the last press conference,” said David Lebovitz, global market strategist at JPMorgan Asset Management.
But over the next week, a key measure of inflation, the consumer price index, Up 8.3% for the year. The measure was down from March’s 8.5% increase, but above economists’ expectations for an 8.1% increase.
The problems between the market and the Fed may have less to do with self-flagellation and more to do with growing distrust of the institution. The old mantra of “don’t fight the Fed” has evolved into “don’t trust the Fed.”
“People are starting to lose faith in the idea that the Fed does have some control over inflation,” Leibovitz said. “It’s all about controlling what the Fed is going to do, unfortunately given their lack of clear guidance, and surprising Investors are a little uncomfortable with the inflation report.”
even the ex Fed Chairman Ben Bernanke This week, he raised some questions when he broke down former Fed chairs for not speaking ill of their successors.He said in an interview that the Fed’s decision to delay raising interest rates was a mistake On CNBC’s Squawk Box on Monday.
“And I think they agree that it was a mistake.”