Stocks initially tumbled after the Fed continued to push hard to win the war on inflation. The Fed is taking no chances on inflation and is willing to send this economy into recession. Goodbye soft landing, Wall Street is gearing up for a hard landing. The Fed delivered a third straight rate hike of 75 basis points and signaled that it expects the federal funds rate to rise to 4.6% this cycle. The updated staffing forecasts were a bit more restrictive than many had anticipated. The Fed expects unemployment to rise to 4.4% next year and to keep rates high, eventually cutting them to 3.9% by 2024.
Stocks rallied during Powell’s news conference as the Fed’s economic pain level appears to be somewhat limited. There will be softer working conditions, but it seems a lull will come fairly quickly sometime mid-next year.
Powell noted that the FOMC is splitting between 100 and 125 basis points of rate hikes for the rest of the year. The tightening peak is near, and that should be good news for risky assets.
Existing home sales in the US declined slightly in August, but further weakness emerges as mortgage rates continue to rise, consumers falter and the economy looks increasingly likely to slip into recession. Home sales fell to 4.80 million, the seventh straight monthly decline. The housing market will continue to cool, particularly given yesterday’s falling building permit data and the 30-year fixed-rate mortgage rate rising to 6.25%.
Putin ups the ante
Russian President Putin’s recent escalation has shaken financial markets. Putin announced the immediate “partial mobilization” of Russian citizens, noting that they would use “all the means at our disposal,” increasing the risk of nuclear weapons being used. Putin is evidently frustrated by Ukraine’s counter-offensive and retake of territories. Investors are concerned that a major escalation could be imminent that would weigh on European assets.
The post-Fed crypto reaction was initially weak as the hawkish stance was confirmed by Fed Chair Powell. Bitcoin found support at the $18,800 level as Wall Street gains confidence in its handle on the level of Fed interest rates.
On Wall Street, Nomura, Japan’s largest broker, also continued its push into crypto. Steven Ashley joins from Nomura’s Head of Wholesale Division and Executive Officer to become Chairman of Laser Digital Holdings AG1, Nomura’s new digital assets company. Nomura was expected to make a splash in the digital asset industry, and insiders aren’t surprised that Ashley will lead the way.
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