Stocks initially tumbled after the Fed remained very much committed to winning the war against inflation. The Fed is not taking any chances with inflation and they are prepared to send this economy into a recession. Goodbye soft landing, Wall Street prepares for a hard landing. The Fed delivered a third straight 75bp rate hike and signaled they expect the Federal funds rate to rise to 4.6% this cycle. The updated staff projections were a bit more hawkish than many expected. The Fed expects unemployment to rise to 4.4% next year and that they will keep rates elevated and eventually bring them down to 3.9% in 2024.
Stocks rebounded during Powell’s press conference as the economic pain threshold for the Fed seems somewhat limited. Softer labor conditions are going to happen, but it seems a pause will happen fairly quickly at some point in the middle of next year.
Powell noted that FOMC is split between 100 and 125 bp in rate hikes for the rest of the year. Peak tightening is almost here and that should be good news for risky assets.
US existing home sales edged lower in August, but further weakness is coming as mortgage rates continue to soar, a weakening consumer, and on a growing likelihood the economy is recession bound. Home sales declined to 4.80 million, the seventh straight monthly decline. The housing market will continue to cool especially considering yesterday’s plunging building permit data and with the 30-year fixed mortgage rate surging to 6.25%.
Putin raises the ante
Russian President Putin’s latest escalation sent a shock through financial markets. Putin announced the immediate “partial mobilization” of Russian citizens and noted they would use “all the means at our disposal” which raises the risk that nuclear weapons could be used. Putin is obviously frustrated with Ukraine’s counter-offensive and recapturing of territory. Investors are worried that a major escalation could be near and that is weighing on European assets.
The post-Fed crypto reaction was initially weakness as the hawkish stance was affirmed by Fed Chair Powell. Bitcoin found support at the $18,800 level as Wall Street gains confidence they have a handle on how high the Fed will take rates.
Wall Street also saw Nomura, Japan’s largest broker, continue to make the push into crypto. Steven Ashley is switching roles from Nomura’s Head of Wholesale Division and Executive Officer to Chairman of Laser Digital Holdings AG1, Nomura’s new digital asset company. Nomura was expected to make a big splash into the digital asset industry and insiders are not surprised Ashley will lead the charge.
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