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Fed Raises Rates 50 Bps; Takes 75 bp Hike Off Table for June
[/vc_column_text][vc_column_text]Please see below for insights from the Catalyst and Rational investment teams for an initial reaction to today’s 50 bps rate hike from the Federal Reserve and the subsequent Q&A session.
Leland Abrams of Wynkoop Financial and Portfolio Manager of an income fund
- While the Federal Reserve’s decision to hike rates 50 bps was mostly a non-event that markets had priced in, the Q&A session hosted by Chair Jay Powell was much less hawkish than markets had expected, as a 75 bps hike is now off the table for June.
- Markets can now expect two more 50 basis point hikes with a chance for a pause in September (depending on the data).
- The Federal Reserve realizes the supply side is out of their hands, and they’re looking for progress in core inflation readings but haven’t set a specific target.
- In response, stocks are up and yields are lower. The yield curve is steeper, with the front end and belly of the curve rallying the most – coinciding with an anticipated soft landing. Mortgage basis are much tighter.
Simon Lack of SL Advisors and Portfolio Manager of an energy infrastructure fund
- Chair Powell’s comment that they had not considered a 0.75% hike caused bond yields to drop and drove the stock market’s strong subsequent performance.
- We continue to think that this is a dovish Fed trying to make up for previously mis-reading inflation. They estimate “neutral” as a 2-3% Fed Funds rate. A pause at that point would make sense.
- Energy stocks were already strong because of the EU’s decision to stop imports of Russian oil by year’s end. Ten-year TIPs yields dropped, reflecting a modest increase in inflation expectations which further buoyed energy
Daniel Rudnitsky of SMH Advisors and Portfolio Manager of an income fund
- As the FOMC voted unanimously to increase the benchmark rate by a half percentage point, it also will begin allowing its holdings of Treasuries and mortgage-backed securities to decline in June at an initial combined monthly pace of $47.5 billion, stepping up over three months to $95 billion.
- Most interesting to the markets was the fact that Fed Chairman Powell said that hikes of 75 basis points aren’t something officials are actively considering. The dollar and shorter-term Treasury rates fell, steepening yield curves.
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