Cautious Optimism Following Fed’s Latest Interest Rate Hike
By The Federal Reserve’s decision to raise interest rates again on Feb 1, has been met with cautious optimism.[0] The 25-basis-point rate hike was lower than December’s increase of 50 basis points, and the previous four rate bumps of 75 bps, signaling that the Fed believes the economy is on the brink of stability and that it is no longer in need of the support it required during the pandemic.[1]
However, conflicting data such as the hot jobs report, has thrown the market into question, with the possibility of the end of the rate hike cycle further out on the horizon.[2] This week, a shift in sentiment on Federal Reserve policy is emerging in interest-rate options, where several big wagers on the central bank’s benchmark rate reaching 6%, nearly a percentage point higher than the current consensus, have popped up.[3]
The US dollar remains under pressure despite the positive pressure on the US yields, as traders are seemingly waiting for a signal from inflation data to be sure that sending the dollar back above the 50-DMA is the right decision.[4]
The direction of monetary policy for the rest of 2023 will largely be determined by economic data.[5] It may take six to nine months for the effects of the monetary policy tightening that has occurred thus far to be observed.[5] Chief Growth Strategist Meredith Margrave has been a noted financial expert and market commentator for the past two decades, and is currently the Editor of the POWR Growth and POWR Stocks Under $10 newsletters.[6] She suggests that investors should look for low-priced companies with the most upside potential in today’s volatile markets to make the most of their investments.
0. “Federal Reserve slightly raises interest rates, but warns of further increases” http://cbtnews.com/, 6 Feb. 2023, https://www.cbtnews.com/federal-reserve-slightly-raises-interest-rates-but-warns-of-further-increases/
1. “Federal Reserve hikes interest rates by 25 basis points” The Ticker, 13 Feb. 2023, https://theticker.org/9987/business/federal-reserve-hikes-interest-rates-by-25-basis-points/
2. “The Federal Reserve must back off interest rate hikes” MSNBC, 10 Feb. 2023, https://www.msnbc.com/opinion/msnbc-opinion/federal-reserve-must-back-interest-rate-hikes-rcna69088
3. “Traders Are Starting to Put Big Money on the Fed Going to 6%” Bloomberg, 8 Feb. 2023, https://www.bloomberg.com/news/articles/2023-02-08/big-bet-on-hawkish-fed-seeks-135-million-gain-on-6-policy-rate
4. “The 6% Bet” Action Forex, 10 Feb. 2023, https://www.actionforex.com/contributors/fundamental-analysis/485735-the-6-bet
5. “Outlook for US fixed income and equities Franklin Templeton” Beyond Bulls & Bears, 12 Feb. 2023, https://global.beyondbullsandbears.com/2023/02/13/outlook-for-us-fixed-income-and-equities-amid-tighter-financial-conditions/
6. “Is This the End of the 2023 Market Rally?” Entrepreneur, 3 Feb. 2023, https://www.entrepreneur.com/finance/is-this-the-end-of-the-2023-market-rally/444342
