Yes, children, we now live in a different era. The FOMC released what was taken as a “dovish” policy statement today, as they raised the Fed Funds Rate by a quarter of a percent, and signaled two more rate hikes this year. Think about that for a minute. Okay, now think some more. I’ll wait. So a dovish tightening? How so?
In December, “market based measures of inflation compensation had moved up considerably.” Today, “market based measures of inflation compensation remain low“. On top of that, in December, “the committee expected that economic conditions would evolve in a manner that would warrant gradual increases in the federal funds rate.” Today, committee expectations remained unchanged on this count. Oh, the pain. Still wearing some C, some JCP, some BAC, and some KEY, though a few less shares thankfully.
Let’s face it gang, headline consumer level inflation hit the tape at 2.7% y/y this morning, but inflation wasn’t there on the month over month read. The pop was really only due to the complete lack of inflation that plagued the economy for all of 2015, and into early 2016. Just wait two more months, when we’re a year out from that pop in headline CPI that we went though last Spring. That’s when you’ll see headline CPI test 2.0% y/y support… without any kind of a decrease in actual prices. Then, given the volatility in the oil space, you could see a drop in real prices as well.
Which leads us to why it was so very important to get this rate hike on the tape. Imagine, it’s May 3rd (no press conference), or better yet … June 14th. The advance print for Q1 GDP is to be released on April 28th. Let’s just say, the print has come in at less than 1% q/q SAAR. So now, you think you are going to prep the marketplace for another rate hike with anemic economic growth, and declining headline consumer level inflation. Oh, the politics of such a thing would be so interesting. People could get fired. It was the right thing to do to set up two more rate hikes today. You can always walk those back, but it is clear that the FOMC absolutely had to move today. June is no sure thing. Not even close. They had no choice.
SPX: Good day for the levels. First resistance was offered at 2372, which we gave you. The first stop after the Fed induced spike was at 2383, which was actually one point above the level I gave you this morning. Still scoring that a win. The top of the chart came at the 2390 spot. That was above my highest level of the day, but I did give you that spot yesterday… and it did work.
RUT: My Russell levels were a little sloppy. This morning, I gave you 1370, 1378, and 1384 on the way up. I’d be happy if I had missed only one of them, But I missed all three. You probably would have been better served at 1371, 1380, and 1385. My apologies.
Rock & Roll.