Hopefully you’re enjoying the start of the summer and not paying attention to the latest Media drama that’s spinning a false narrative about a hawkish shift in the Federal Reserve’s interest rate policy.
This week’s scheduled FED FOMC meeting was touted as a lynchpin event for managing inflationary pressures. Legendary commodity trader Paul Tudor Jones said, “I think this FED meeting could be the most important meeting of Jay Powell’s career and certainly the most important FED meeting of the past four or five years.”
Nothing material actually happened, but that didn’t stop the Media from reporting a “hawkish shift” in policy.
On June 10, 2020, in response to some initial lifting of COVID19 lockdowns, the FED said they would hold rates at near zero, and stated, “We’re not thinking about raising rates, we’re not even thinking about thinking about raising rates”. Their policy was to remain flexible and supportive of a full economic recovery. It was suggested that rates won’t rise until some point in the distant future, perhaps not until 2024…IF NEED BE.
Now that the economy is reopening and moving towards a recovery, the FED has REITERATED that they’re NOT yet ready to raise rates until sometime in the distant future, perhaps not until late 2023, certainly not until at least sometime in 2022.
For political reasons, I think it’s highly unlikely that the FED would raise rates prior to the November 2022 midterm elections.
The FED summed up their FOMC meeting by saying, “You can think about this meeting that we had as the ‘talking about talking about tapering,’ if you like.”
The Bond Market doesn’t appear worried, because the 10 Year Treasury yield has dropped to 1.46%; however, the Stock Market is in full panic mode, with VIX volatility spiking above 20.
I see this as a buying opportunity, and yet again a confirmation of the 2021 schizophrenic personality of the S&P 500. Nearly every month this year has seen a selloff of the S&P 500 down to its 50dma, followed by a rally to a new record high. I think it’s likely this pattern will continue.
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