Good Thursday AM,

Fed meeting yesterday was pretty much as expected. The market seems to have digested yesterday’s Fed meeting and come to the conclusion that Powell did not say anything surprising. Tapering doubled but no expectation for the Fed to hike until the Fed stops buying bonds. That is going to be March-ish. Current expectations are that the Fed will raise rates 3x next year. I don’t know that we will get 3 but we will get some. We will have to, regardless of the yield curve flattening and it potentially stymieing growth and setting up the next recession. That is too far away to think of from now. The initial response was stock flew higher and bonds sank. Today is different. Stocks are hurting and bonds are doing well (data also helping with more unemployment claims than expected and Manufacturing survey dropped like a rock). Now the question is what will the market do with this information?

Here is a very interesting point that may take a few times of reading to digest (as it did me): the Fed softened the blow of pivoting. The Fed now sees Core PCE (inflation metric) of 2.7% in 2022 vs. a previous forecast of 2.3% at its September meeting. This may seem obvious. Implicitly, this means a slightly less hawkish stance, as the expected pace of rate hikes comes against a hotter outlook more generally. Because nothing surprising was said, we have to assume that the same trading ranges will apply. We should keep assuming this until we see a breakout or a breakdown. Markets move sideways over 70% of the time and they move sideways within specific ranges. This is called a trading range. As breaking out of a range is the exception, it is difficult to call and I am not calling for it now. I would only say that I would float until we see bonds start to give back gains and then lock pretty quickly thereafter. Trading will thin after tomorrow as more and more vacationers vacation.

Please remain safe and healthy, make today great!