December 15, 2021
Good morning,
Overnight Futures have been steady and largely unchanged as the Fed decision looms. Yes, Fed day is finally here. The end of the easing cycle is fast approaching (first rate hike now expected mid 2022). The Fed is widely expected to announce that it will accelerate the pace of the taper following the conclusion of today’s meeting (after 2pm ET). Most investors expect the Fed to double the pace of taper to $30 billion/month, wrapping up QE all together in mid-March. Forward rate pricing by the market suggests rate hikes to be pulled forward in the Fed’s dot plot today. The market seems to expect to see a median of two rate hikes for next year, four in 2023, and two in 2024 on downward revisions to the unemployment rate and upward revisions to inflation.
If the Fed’s announcement this afternoon is in-line with the market’s expectations above, then we might expect equities to resume their upward ways – uncertainty will be lower post announcement. However, more hawkish moves by the Fed today and equities might stage a minor tantrum. The VIX is still elevated at 22.
Technically, the market’s Tape signals remain fine. Not as strong as 6 months ago but still strong enough to remain fully invested. I cannot get over the idea that our Fed has pivoted and a new rate regime has begun for the equity market to price in. However, it’s clear that I am very alone in this thinking. At best, it seems I’m 6mo early. Just sayin’.
See you Friday.
Be well,
Mike