Sevens Report analyst Tom Essaye warned in a Tuesday note that the most recent market gains could be little more than a “head fake rally,” explaining that the Federal Reserve’s actions to protect depositors at Silicon Valley Bank and Signature Bank could actually cause inflation to linger even longer. Click here to read the full article.
Data released this week suggests that inflation may have peaked, allowing the Federal Reserve to be less aggressive when boosting interest rates…Tom Essaye, founder of Sevens Report Research said Friday that the S&P 500’s current level reflects that growing sentiment. Click here to read the full article.
Get the simple talking points you need to strengthen your client relationships—start your free trial of The Sevens Report now.
What are the market implications the optimistic statements from Fed Vice Chair (and President of the Federal Reserve Bank of New York) William Dudley’s optimistic statements this week?
Fed Vice Chair Dudley reiterated and bolstered Fed Chair Yellen’s “steady as she goes” message on rate increases last week, again dismissing low inflation as not a big enough problem to stop the Fed from continuing to hike.
Additionally, Dudley was optimistic about economic growth, saying he was “confident” the current economic expansion had plenty left in the tank.
Bottom line, Dudley reiterated that the Fed is committed to raising interest rates and removing accommodation, and that caused a mildly “hawkish” reaction across currencies and bonds.
It also helped push stocks higher (although stocks were already in rally mode). So, our general Fed outlook remains the same: Balance sheet reduction starting in September, and a rate hike in December.
However, in order for the hawkish tone from the Fed to get the Dollar Index and yields moving higher, we’ll have to see actual improvement in the economic data, and that remains elusive. As such, the market remains skeptical about future rate hikes, despite the Fed’s warnings (Fed fund futures are pricing in just a 20% chance of a September hike, and 40% chance of a December hike). So, the Fed has some work left to do on reestablishing its hawkish credibility after years of ultra-dovishness.
The Sevens Report is the daily market cheat sheet our subscribers use to keep up on markets, seize opportunities, avoid risks and get more assets. Start your free two-week trial today.