What will Powell do?
First, Powell cannot give any indication that he will back off, even though the corner on inflation has been made. To follow through on his posture and rhetoric he is forced to do a small 0.25 rate raise.
What does market analysis say?
To me, watching market interest rates, the (30+10+5+2 year average) and how it acts vs the FF rate is front and center.
Some questions as I see them:
What does it mean for FF rate to have run 100 basis points over market rates for the past 60 trading days. Is this due to Fed action or the markets belief that we are headed into a recession? What happens if we don’t have a recession as recent data indicates?
Here is the countdown that has evolved since early November:
- 11/10/22 Fed Fund rate went over average market rates as Fed went into overkill mode.
- 1/10/23 30 year rates went over 5 year rates, a signal that economic scene is entering growth mode
- 1/18/23 3 month rates peaked at 4.752
- My guess going forward: 3 month rate stagnates at 0.40 over market rates as FED overkill drags on and grass roots market factors pushes stocks higher.