The Fed: "More Work to Do"

The Fed delivered a 50 basis point interest hike yesterday to bring rates to the 4.25% – 4.5% range. This was expected. In his press conference and statement after the rate hike announcement, Fed Chair Jerome Powell said two things that are important…

First, Powell said the Fed has “more work to do.”

And second, he said, “We think the appropriate thing to do now is to move to a slower pace.”

Both of these statements are consistent with expectations in that a couple more rate hikes are coming early next year. And that the Fed plans to pause after the March meeting.

In other words, Fed Chair Powell did not deviate from the script.

Now, you may be wondering why index futures for the S&P 500, Dow Industrials, and Nasdaq are all 1% – 1.5% lower in the pre-market. After all, didn’t the Fed deliver what was expected? Shouldn’t that be seen as good news?

Eh, I guess. But herein lies the problem with expectations: when you get what you want, it’s not really a surprise. You’ve already experienced the anticipation.

It reminds me of being a kid. Like when my brother and I got a joint Christmas present from our parents (usually a bike). In the Fall, Dad would take us to the Schwinn store for some mundane purchase like an innertube, and he’d watch us to see what bikes we thought were cool. Nobody spelled out what was going to happen, but we all kind of knew what was going to be under the tree.

The dynamic is pretty much the same in the markets. The Fed didn’t give the market any new information that would affect stock prices. We already had a decent rally off last week’s lows. It’s reasonable for the market to now check and see just how bullish or bearish investors are after the Fed’s announcement.

One of my mentors used to say that the first move after a Fed meeting is wrong. That is, if investors get all excited and push stocks higher after a Fed meeting, a reversal to the downside is inevitable. Conversely, if the market’s first move after a Fed meeting is lower, it’s wise to be on the lookout for a rally.

The first move after yesterday’s meeting is pretty obviously lower. And if you decided to torture yourself first thing in the morning and try to make sense of everything the Fed said yesterday, you may have found the source of this morning’s hand-wringing. For some reason, Powell decided to address the issue of interest cuts in 2023.

He said there won’t be any.

Now, I don’t know why rate cuts are being discussed when the Fed isn’t even done with rate hikes. It’s a meaningless discussion — a total red herring — and I would advise you to completely ignore it.

So what do I think will happen? I’m on the lookout for a move higher off the opening lows today. And I’m looking at Meta (NASDAQ: META) for a potential upside trade.

That’s your “Morning in the Markets” for today. Take care and I’ll talk to you tomorrow.