• The FOMC raised rates yesterday by another 75 bps.
• The upper limit on the Fed Funds Target Range is now 4.00%.
• After a brief rally, the market had a major reverse by the close.
  

Happy Thursday!

Only one more day to go…

Did you ever get the feeling someone doesn’t like you?

You know… you go to a party.

You’re dressed to the nines.

You’ve got a great bit of arm candy.

But… something just doesn’t feel right.

There’s this dude looking at you from across the room with utter disdain.

You’ve done nothing wrong - to your knowledge.

Later on, you’re introduced to this person who seemingly holds you in contempt.

He looks down his nose at you… but you make some progress.

Small talk. A bit of chit-chat.

He seems to have settled down a bit.

You’re smiling. He’s smiling.

You get to talk about cars.

You mention you drive a Porsche Boxster.

And he says, “Ah, yes. The Poor Man’s Porsche.”

At that point you know two things. The first is you’re getting nowhere with this person. And the second is this person is a bit of a dick.

I imagine Mr. Market feels like he’s the guy with the Boxster.

And Jay Powell couldn’t care less.

The Fed Raises 75 Basis Points

This was no surprise at all.

The Fed said they were going to do it again. This is the sixth rate rise in as many meetings and the fourth consecutive 75-bp rise.

This brings the Fed Funds upper bound to 4.00%.

Quick reminder: 75 basis points equals 0.75% as 1 basis point = 0.01%.

Credit: Bloomberg

I expect they’ll raise rates again in December. But it may only be a 50-basis point rise at the final meeting of the year.

Again, no surprises there. It’s pretty much the current consensus.

The Initial Reaction

Here’s where I was a bit confused.

Upon the announcement, the market rallied.

The above chart is yesterday’s 15-minute chart.

The SPX rallied 50 points between 2 pm and 2:30 pm.

We’ll never know, but I think the market expected Jay Powell would cool his hiking rhetoric.

At times like these, it seems like the market either doesn’t believe Powell or doesn’t listen to what he says to begin with.

Here’s a snippet from his speech (bolds mine):

With today’s action, we have raised interest rates by 3-3/4 percentage points this year. We anticipate that ongoing increases in the target range for the federal funds rate will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.

Financial conditions have tightened significantly in response to our policy actions, and we are seeing the effects on demand in the most interest-rate-sensitive sectors of the economy, such as housing. It will take time, however, for the full effects of monetary restraint to be realized, especially on inflation.

That’s why we say in our statement that in determining the pace of future increases in the target range, we will take into account the cumulative tightening of monetary policy and the lags with which monetary policy affects economic activity and inflation.

At some point, as I’ve said in the last 2 press conferences, it will become appropriate to slow the pace of increases, as we approach the level of interest rates that will be sufficiently restrictive to bring inflation down to our 2 percent goal. There is significant uncertainty around that level of interest rates.

Even so, we still have some ways to go, and incoming data since our last meeting suggest that the ultimate level of interest rates will be higher than previously expected.

Our decisions will depend on the totality of incoming data and their implications for the outlook for economic activity and inflation. And we will continue to make our decisions meeting by meeting and communicate our thinking as clearly as possible.

In short, Powell isn’t done yet, and he’s not hiding the fact he isn’t done yet.

I genuinely don’t get why the markets don’t get that.

Perhaps they just heard the “slow the pace of increases” part…

The Press Conference

Interestingly, this tweet shows how Powell got annoyed when he heard the markets were rallying:

Credit: @andycwest

Now there’s some question as to when the question was asked.

But to me, the markets were rallying until Powell gave his answer.

I encourage you to watch the clip.

It clearly looks like Powell wants the stock market down a few hundred more points.

Going Into the Close

After Powell answered the question from that reporter, this is what happened:

The SPX fell 130 points.

Again, I’m not sure why it rallied so much to begin with. But it certainly came back down to earth.

This is why I’m so wary of those calling bottoms.

If we shouldn’t have fought the Fed during our massive bull markets, why are we fighting the Fed now?

The Fed, Powell, and Powell’s desire for a positive legacy are all conspiring to keep a lid on the stock market.

I don’t think Powell will stop until we get to 2% inflation… or the Fed breaks something.

I’ll bet on the latter, but that may be some time down the road.

Wrap Up

I suspect Powell doesn’t care about the damage he’s doing to the stock market because he knows the Republicans will crush the Democrats on Tuesday.

If that happens, Biden will be a lame(r) duck, and Harris will no longer have the deciding vote in the Senate.

This gives him even more wiggle room to increase rates as he sees fit.

The big question now is this: will Powell surprise to the upside and hike 75 bps in December?

We’ll know nearer the time.

Until tomorrow.