Stocks initially fell after the Fed remained highly committed to winning the war on inflation. The Federal Reserve is taking no chances on inflation and is prepared to send this economy into a recession. Goodbye soft landing, Wall Street prepares for a hard landing. The Federal Reserve made a third consecutive rate hike of 75 bps and signaled that it expects the fed funds rate to rise to 4.6% this cycle. The updated staff projections were a bit tighter than many expected. The Fed expects unemployment to rise to 4.4% next year and that it will keep rates elevated, eventually lowering them to 3.9% in 2024.
Stocks rallied during Powell’s press conference as the Fed’s economic pain threshold appears somewhat limited. Easier working conditions will follow, but it looks like a pause will come rather quickly sometime in the middle of next year.
Powell noted that the FOMC is split between 100 and 125 bps in rate hikes for the rest of the year. The tightening ceiling is almost here and that should be good news for risk assets.
US existing home sales fell in August, but further weakness looms as mortgage rates continue to rise, a weakened consumer and a growing likelihood the economy is headed for recession. Home sales fell to 4.80 million, the seventh consecutive monthly decline. increasing to 6.25%.
Putin ups the ante
Russian President Putin’s latest escalation shocked financial markets. Putin announced the immediate “partial mobilization” of Russian citizens, saying they would use “all means at our disposal,” increasing the risk of nuclear weapons being used. Putin is obviously frustrated with the counter-offensive and Ukraine’s retaking of territory. Investors are concerned that a major escalation may be near and that it is hurting European assets.
The post-Fed crypto reaction was initially one of weakness as Fed Chairman Powell affirmed the aggressive stance. Bitcoin found support at the $18,800 level as Wall Street gains confidence that they have an idea of how high the Federal Reserve will take rates.
Wall Street also saw Nomura, Japan’s largest broker, continue to push into cryptocurrencies. Steven Ashley is changing roles from Head of Wholesale Division and CEO of Nomura to President of Laser Digital Holdings AG1, Nomura’s new digital asset company. Nomura was expected to cause quite a stir in the digital asset industry and experts are not surprised that Ashley is leading the charge.
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