Fed Raises Target Rate by 50 bps, Powell Rules Out 75 bps Hikes for Now

The Fed had its monthly meeting on May 3rd and May 4th.  The market was widely expecting a 50-bps hike despite some murmurs from the hawkish flank. Powell also telegraphed markets could likely expect two more 50-bps hikes. That is what the market got and despite fears of hawkish rhetoric the market got the somewhat dovish surprise of Powell saying that the FOMC is not “actively considering” a 75-bps hike.  The 2-yr yield dropped .13% and the 10-yr dropped .04%, flattening the curve. However, the day after yields moved up sharply.

Stocks also moved up sharply in the last hour of trading following Powell’s press conference. The post-meeting rally was erased and more when Thursday saw the biggest loss across the indexes of the year so far. The selling did not appear to be driven by the Fed meeting and didn’t appear to have a direct catalyst other than general uncertainty and the move in rates. As our Head of Research, Tom Lee, has pointed out the bond market has certainly already done a lot of work for the Fed. The 10-yr has doubled since the beginning of the year. Real economy interest rates have reflected this move and evidence of tightening in certain markets, like mortgages, is clear.

The Fed also gave clarity on their quantitative tightening (balance sh...

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