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Fed Confident In Soft Landing, Not Considering 75bps

By Anna Peel. Originally published at ValueWalk.

Interest Rate Goldilocks Rate Hike Balance Sheet Runoff end of coronavirus stimulus checks

Fed confident in soft landing, Not considering 75bps, Stocks rally, Oil surges as EU nears Russian ban, Gold gets groove back, Musk’s Ape Tweet – OANDA

Fed Confident In Soft Landing

A historic Fed decision is in the books and Fed Chair Powell did not disappoint. ​ The Fed delivered the first-rate hike in 22 years and signaled more rate increases are appropriate and that the balance sheet runoff will begin in June. ​ Growth is cooling and that could get a lot worse as the Ukraine invasion will continue to drive upward pressure on prices. ​ Wall Street still believes the Fed will be able to deliver a soft landing and that is good news for equities. ​ The key takeaway from the Fed is that they are not ready to consider larger rate hikes. ​ Risky assets got a boost after Fed Chair Powell said, ““So a 75 basis point increase is not something that the committee is actively considering.”


Q1 2022 hedge fund letters, conferences and more

Inflation is not slowing down anytime soon, but that is not scaring Powell as his confidence grows that he can remove the option of Volcker type rate hikes.

US stocks surged after Fed Chair Powell signaled he can slow inflation without triggering a recession. It seems risky assets can rally now that Wall Street has fully priced in the rest of the year’s rate hikes by the Fed. ​ ​

Oil

Crude prices surged after EU outlined plans on phasing Russian oil and following the FOMC decision that signaled Wall Street has passed peak hawkishness. The oil market will remain tight going forward and now that a peak in the dollar is in place crude prices should have extra support here.

The latest EIA crude oil inventory report posted a surprise build but energy traders fixated over the strategic petroleum reserves falling to the lowest levels in over two decades. US production remained steady at 11.9 million barrels a day, which suggests producers are not rushing to increase output as rig counts have steadily been rising.

The focus will shift to OPEC+ and that is likely to be an easy meeting that keeps the gradual increase output strategy in place.

Gold

Gold prices are embracing the FOMC decision that suggests Wall Street has passed peak hawkishness. ​ Fed Chair Powell removed the risk of 75 basis point rate increase at the June meeting and suggested that hikes could come down to 25 basis points once inflation comes down.

Gold got its groove back as a firm top has been put in for the dollar. Even if inflation continues to run hot, investors will take comfort from Fed Chair Powell’s words and that should be good news for gold investors. ​ Gold may find tentative resistance at the $1900 level, but momentum traders might pounce if price action breaks through over the next day. ​

Cryptos

ApeCoin, the token used for the Bored Ape Yacht Club network, surged after Elon Musk changed his Twitter profile picture to an image showing several avatars. ​ The crypto market continues to react to anything that Elon Musk does, but the lack of a Bored Ape endorsement and a tweet that said “seems kinda fungible” made ApeCoin give back most of its gains.

Bitcoin rallied after Fed Chair Powell ruled out larger interest rate hikes.

Article By Edward Moya, OANDA

Updated on

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