Daily Alert – Thursday 3rd November 2022: Fed chair Powell shoots dove on live TV

Mark NugentDaily Alert, Nov 2022

Daily Alert – Thursday 3rd November 2022: Fed chair Powell shoots dove on live TV

Good morning.

Well at 6pm UK-time the Fed announced they were going to raise interest rates by the expected 75 basis-points. Some of the statement’s language was perceived as dovish. There was mention of taking account of the cumulative effects of all the recent hikes and the fact that those effects have yet to be fully felt. It certainly sounded a wee bit dovish. A bit take-the-foot-off-the-gas. Equities up, USD down.

Then Jerome did his press conference and removed all doubt. About being hawkish. Some selected quotes: “incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected.” Powell didn’t “have any sense that we’ve overtightened or moved too fast,” that it was “very difficult” to make a case that the current rate was too tight, and “It’s very premature to think about or talk about pausing our rate hikes.”

The dove lies dead on the floor. Equities down, USD up.

I took S&P500 short around 20 minutes after Powell showed his intentions. So far, it’s around 1.3 percent in the money.

I really felt that the comms from the Fed in this case could have been better. They should have seen that the markets would have interpreted the statement as dovish. Powell does not usually make such mistakes.

Talking of mistakes, we have Governor Bailey and his jolly Monetary Policy Committee doing their thing at lunchtime today. A 75 basis-point hike is expected. It will be interesting to hear what Bailey has to say in terms of how far he thinks they need to go to tame inflation. Is it even tamable? How relaxed are they abound causing a recession in the UK economy which is considerably weaker than the US economy?

I’ll be back tomorrow with your Performance Report for October and year-to-date.

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