- Given how U.S. Federal Reserve policy has taken on an outsize influence on the markets, more traders are throwing in the towel and just selling everything.
- With inflation still running white hot and odds of a U.S. recession rising fast, traders trying to figure out what happens next are finding it impossible.
Given how U.S. Federal Reserve policy has taken on an outsize influence on the markets, more traders are throwing in the towel and just selling everything.
Part of the reason of course is right up till this past Wednesday’s Federal Open Market Committee meeting, policy directions were relatively certain, with the central bank having made clear that the June hike would likely be 50-basis-points, as would July.
But the fastest pace of inflation in four decades has meant that this Fed deployed its “nimbleness” in policy construction and there is less certainty about policy pathways ahead, even in times of stress.
With inflation still running white hot and odds of a U.S. recession rising fast, traders trying to figure out what happens next are finding it impossible.
Almost nothing in the markets was spared, bonds, stocks, cryptocurrencies, were all hammered.
Making markets even more uncertain, U.S. Federal Reserve Chairman Jerome Powell provided no forward guidance on next month’s meeting, which could deliver a 50-basis-point or a 75-basis-point rate hike.
Given how even the Fed is uncertain as to what the next inflation print is likely to be, it can’t meaningfully plot policy either, but Powell and his colleagues have made clear that their focus is on rising prices.
Adding to the uncertainty is the Fed’s sudden pivot to focus on headline inflation numbers which include volatile food and fuel figures, although the central bank has typically always preferred measures which strip out energy and food costs to zoom in on more persistent sources of price pressures.
All of which mean that investors could end up on the wrong side of trades more often than they expect because even the Fed doesn’t know.
