The rate hike fol-de-rol pales in importance compared with the Fed balance sheet and the Treasury General Account at the Fed which all by itself has almost matched the liquidity withdrawal of QT with the liquidity injection of the TGA drawdown.
From Bloomberg via Yahoo Finance, March 22:
Wall Street widely expected the Federal Reserve to raise interest rates by 25 basis points, which is exactly what happened. But equity investors debated conflicting messages: the policy guidance shifted from “ongoing” rate increases to “some additional” policy firming, though Chair Jerome Powell said that the Fed’s hands aren’t tied.
Stocks gained in the immediate aftermath and then sank. Treasuries and the dollar fell. Investors pouring over the Fed’s Summary of Economic Projections didn’t get much help there, since the Fed’s expectations for unemployment and inflation were little changed.
While Chair Powell said in his news conference that the policymakers had weighed a pause in rate hikes ahead of their meeting, the Fed remained focused on the risks of high inflation even as it watched developments in the banking system. “If we need to raise rates higher, we will,” he said.
“This is about as hawkish as the Fed can be given the banking sector stresses that are ongoing,” said Win Thin, global head of currency strategy at BBH. “To me, the statement is similar to what the ECB said. That is, once we get past the banking sector stresses, the tightening cycle likely remains intact.”
Here’s what others on Wall Street had to say:
Sonia Meskin, head of US macro at BNY Mellon:
“This is slightly hawkish, yes, though the market so far appears to give it a dovish read, which possibly makes sense given that Powell’s most recent pronouncement before the blackout period opened the door to a 50 bps hike and a more material tightening that the March SEP actually reflects.”Joe Gilbert, portfolio manager at Integrity Asset Management:
“Powell is trying to have it both ways. He is trying to appease both the hawks and the doves. This ultimately may be the last rate hike this year but Powell has to make the market believe that it isn’t because that would loosen financial conditions too much. The softening to come in the economy from the banking collapses has yet to be felt and the Fed knows this but they can not be alarmists.”Seema Shah, chief global strategist at Principal Asset Management:
“The past roller coaster month has seen Powell go from dovish, to hawkish, and presumably back to dovish, with market expectations following this volatile ride. Policymakers will be desperately hopeful that inflation plays ball and the deceleration trend reasserts itself soon, validating today’s decision. If not, April and May could be potentially even more exhausting months.”Matthew Hornbach, global head of macro strategy at Morgan Stanley, on Bloomberg TV:
“What strikes me is how they have balanced financial stability concerns against concerns about sticky inflation. The way they have done it is they have told us they are going to hike less but cut later. That seems like a pretty rational decision. I think the market should feel comfortable. The bond market is going to have a very difficult time taking out these rate cuts that are priced in through the balance of this year.”....
....MUCH MORE
