Daily Alert – Thursday 5th May 2022: “Dovish” 50 basis-points hike by the Fed
The Fed increased the interest rate by 50 basis-points, as expected. Thirty minutes later, Fed Chair Powell held his press conference. He squashed the chance of a 75 basis-point hike at the next meeting, while saying there would be “pain” from the hikes, but inflation would be worse.
All the prior doubling down and tough talk unravelled. Equities soured over the next 90 minutes and the USD dived. This is a prime example of the market reacting to a change in their expectation, not a change relative to the last event. The market always behaves like this, yet some are always surprised.
What does all this mean? Well, the chances of a soft-landing have increased and of a recession have decreased. This should lead to better trading conditions. However, it is probably prudent to allow the markets a few days to form their view on what it all means.
Have a nice weekend when it comes. We’ll be back on Monday.
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