What will slow the pace of Fed rate hikes?
The US employment rate for September dropped to 3.5%, below economists’estimates of 3.7% and tying a 50-year low. The strong report is likely to keep the Federal Reserve on a path to hike rates by 75 basis points at its next meeting November as worries over wage inflation persist.
A hawkish Fed has led to the deflation of assets prices including stocks. Continued hawkishness could ultimately induce a recession.
Monetary policy works with a lag effect and the Fed could slow or halt it hiking cycle if it sees progress in fighting inflation. Next Thursday's CPI report for September will be the last inflation data the Fed will see before its November meeting. Even if it comes in below the 8.1% year-on-year that is expected it will likely not be enough for the Fed to change its path.
Several Fed members have recently reiterated that they do not expect to slow the pace of rate hikes until there is a solid trend of decreasing inflation. One good report will likely not be enough. This could mean that any stock market rallies would not last very long.
A threat to the stability of the financial system (or even just a perceived threat) might be the only thing that would force the Fed to change its tune in the near-term. Such an event could be more calamitous to markets than the Fed hikes though.
The views and opinions of Mooney Navigator are those of the author who is not an associated person of Moomoo Financial Inc. The view and opinions of the author do not reflect the views of Moomoo Financial Inc. or any of its affiliates. The views and opinions of the author are provided for informational purposes only, do not constitute a recommendation of an investment strategy or to buy, sell, or hold any investment in any form, and are not research reports and should not be used to serve as the basis for any investment decision. All investments involve risk including the loss of principal and past performance does not guarantee future results.
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SpyderCall : the fed has talked about a few things that there will be watching for before they will even consider slowing down the rate hikes and want to see Employment number is getting worse, economic growth slowing, and I want to see inflation coming down. they also mentioned how they will be watching the longer term yields. they said that they will control the shorter term yields by hiking interest rates in the longer term yields will take time to catch up. possibly when they catch up the FED might slow down who knows. or if we get a major collapse of the financial system or any part of the financial system then they will for sure slow down or even reverse pivot whatever you want to call it
SpyderCall : good column by the way
not-a-cow SpyderCall: When the LT yields catch up, that's when gold prices will have bottomed out.
SpyderCall not-a-cow: Interesting thought. the market is in very interesting times. many old methods of trading are not really working. in the past when yields are going up that is good for equities. but yields going up right now is bad for inflation. basically yields going up is growth and growth requires inflation in our fractional Reserve System. so it will be interesting to see if gold goes up when the dollar is coming down. because I believe the dollar will come down when yields come down. there is one side of my brain telling me that if the dollar comes down and yields are coming down then gold could possibly come down as well. this is because gold is a major hedge against inflation so if fields are coming down there's no inflation happening essentially and the attractiveness of the inflation hedge aspect will be no longer. another side of me believes the dollar will come down because other currencies getting strength and that will lift gold as well especially if inflation is still high. and for the record gold is historically cheap right now. whenever we do find a bottom on gold I am definitely going to be jumping on for a long-term investment. I've actually never held gold in my long-term portfolio.
not-a-cow SpyderCall: You're missing the point. Here: https://www.bloomberg.com/news/articles/2022-09-25/john-paulson-on-frothy-us-housing-market-this-time-is-different
SpyderCall not-a-cow: Definitely a good article with good info from a big wig who knows what he is talking about. But I with gold I only go with what I know. Gold is investable under certain circumstances. like inflation, hedge, and most importantly currency devaluation. if there is a major market crash then gold should go up as a "safe haven" or hedge. if inflation comes down with yields then gold will not have its luster as an "inflation protection hedge." If the dollar comes down with yields then gold will gain in strength based off of FX variables or the currency devaluation aspect i mentioned. If inflation is staying high and the dollar is dropping with yields and other countries currencies are gaining strength then gold will for sure rise. But if inflation is dropping and the dollar is losing strength because other currencies gaining strength then I don't know how gold will react. even if yields are dropping... that was a good article for sure but it didn't touch on the main reasons why gold is inevitable. it was more about the housing market. But if the housing market crashes with the stock market. that might be good for gold.
not-a-cow SpyderCall: No such thing as USD losing strength *because* of other currencies.
funny Giraffe_6930 : nothing I thank, they want everyone out of work. we don't have a chance to get by.