Fed Hikes 75bps: Remains “Highly Attentive” To Inflation But Cautions Economy “Softening”


Since the last FOMC Statement on June 15th, we have witnessed the biggest combined stock-bond rally in more than two decades – Stocks and bonds have soared in the last month, the dollar rallied, but gold has been clubbed like a baby seal…

As Bloomberg notes, fixed-income and equity bulls are likely expecting that Fed Chair Powell’s hawkish mission will be tempered by signs inflation has peaked as an economic downturn nears – a wager not without significant risk.

“The market has shifted to bad-news-is-good-news again, the whole idea that central banks will pivot because the data is so bad,” Goldman Sachs Group Inc. strategist Christian Mueller-Glissmann said in an interview on Bloomberg TV.

“We’re going back to a template that we know well.”

On the other side, wagering on a friendly Fed is too premature a bet for Ajay Rajadhyaksha, a strategist at Barclays Plc. The way he sees it, policy officials would try to avoid the mistake they made in April. That month, central bankers talked down the size of rate hikes that would be ultimately needed, prompting bond traders to question the Fed’s commitment to its inflation target. Treasury yields spiked, spurring losses across assets. The S&P 500 dropped almost 9% for the worst month since the pandemic crash.

“The Fed has seen what happens when it prematurely declares victory over inflation and is unlikely to repeat that mistake,” said Rajadhyaksha.

“Stocks and bonds are both hoping that the Fed will pivot away from its commitment to overtightening. It’s a hope that is likely to be dashed this week.”

Read More @ Zero Hedge HERE