As expected, the Fed raised the interest rate for the ninth time by 0.25% as Uncle Powell emphasised that the banking system is “sound and resilient”. Based on the latest projection, the FOMC is considering one more rate increase for the year.
There is also a projection of a lower growth rate for 2023 based on the dot plot, reflecting that the monetary tightening policy while having a lag time on the real economy, will likely take root in 2H2023.
Auntie Yellen spoilt the rally?
Just as the market is rallying, we heard from Auntie Yellen on her rejection of having a “blanket” wide coverage of all deposit protection. This means there is no backstop for all deposits, but the Fed is working on other measures to prevent losses.
During Yellen’s testimony to the Senate committee, she said that the Treasury is not considering expanding the FDIC for all bank deposits and that now is also not a suitable time to consider the current $250,000 cap. This news isn’t a melody for investors.
Indeed, federal agencies are now focusing on stabilising the financial system and boosting confidence in the banking systems. Nonetheless, stocks turned softer and saw a large decline after her response.
More evidence is needed for disinflation- Treasury rose
During the conference, Uncle Powell maintained the stance he took during Feb’s conference, highlighting that “disinflation” is still ongoing. However, the journey towards the 2% target is still long.
He had discussed that goods inflation has been moderating, but housing service disinflation is stickier and given that they account for around 44% of core personal CPI, it will take time to move downward.
The Treasury market responded decisively to the comments of Uncle Powell, and the yield fell. For some traders, the current rate increase and the FOMC statement are still seen as somewhat “dovish” and that perhaps the end of rate hike cycle is near.
What’s on the menu today?
At 8.30 pm, we will have the Initial Jobless Claims. We expect it to rise to 197K from 192K in the prior period.
New Home Sales data will be released at 10 pm. Without many surprises, it should drop from 670K to 650K.
It is 23 March, Thursday, at 8.40 am in Singapore and 8.40 pm in New York. While we had hope for a green day, such that we could have further exited more positions and alleviated our losses, the reversal in the final 30 mins of trading means I am still holding on to significant losses to our portfolio and will work harder to navigate out of this downturn.
I wish all friends, a safe and profitable trading week ahead!
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All is well.