Everything from mortgage rates to credit-card payments are now more expensive after the Fed made its third 75-basis-point hike in a row Wednesday, confirming that 0.75 is indeed the new 0.25, which was once the standard increment.
I'm Phil Rosen, writing to you from New York. Markets whipsawed yesterday afternoon as the FOMC announced its decision and Jerome Powell shared comments at the press conference.
The Fed chair did not mince his words, going as far as saying there's no painless way to tame inflation.
I called on some Wall Street pros to better grasp yesterday's events — and below I'm breaking down why JPMorgan said the Fed could actually cut rates if it means saving the stock market.
1. As rapid as the Fed has raised interest rates in 2022, policymakers could do the exact opposite in 2023, JPMorgan's quant guru, Marko Kolanovic, wrote in a note this week.
As of yesterday, the federal funds rate is now in a range of 3.0% to 3.25% after a third consecutive 75-basis-point rate hike and the fifth increase of the year.
It was near zero at the start of 2022.
Jan Szilagyi, CEO of investment research firm Toggle, told me he expects the Fed to take rates up to 4.5% and 5% by early 2023, then pause. Historically, he added, the time between the last hike and first cut is usually separated by less than a year.
But should the unemployment rate rise and company earnings fall enough to kick off a deep recession, a markets-friendly central bank could emerge over the next year, according to Kolanovic.
That means the Fed could next year reverse course and slash rates, which he said would backstop equity markets — and ultimately limit downside for stocks.
Nonetheless, the takeaway from Wednesday is that more rate hikes are coming, adding to fears that policy adjustments will tip the economy into a recession.
"The Fed will take an aggressive stance on policy until they can see meaningful evidence that inflation is moving toward their stated goal of 2%," Charlie Ripley, strategist for Allianz Investment Management, told me after the Fed's decision published.
Chief investment officer of Cornerstone Wealth, Cliff Hodge, warned that higher unemployment, a housing market correction, and a recession are all likely outcomes ahead.
In his view, a Fed pivot won't materialize until the unemployment rate gets closer to 5%.
"We're going to find out if Powell is willing and able to channel his inner-Volker," Hodge said.
In other news:
2. US stock futures struggled for direction early Thursday, as the odds of a soft economic landing dwindled following the Fed's rate hike Wednesday. Meanwhile, Japan has intervened in currency markets for the first time since 1998 to prop up the yen. Here are the latest market moves.
3. Earnings on deck: Costco Wholesale Corp., Accenture plc, FedEx Corp., all reporting. Plus, look out for the unemployment insurance weekly claims report, expected from the US Department of Labor later this morning.
4. The head of investment strategy at BlackRock's $2.1 trillion iShares Americas unit said the Fed won't cut interest rates until at least 2024. Gargi Chaudhuri explained how to invest in an uncertain market — and revealed which stock sectors are best poised to return cash flow while weathering a recession.
5. China is depleting its oil stockpiles in a potential sign Beijing is looking to boost the economy with a surge in fuel exports. Roughly 1 million barrels a day have left Chinese inventories over the last three weeks, Vortexa data shows. Both oil refiners and traders in China have applied for an additional 15 million tons of export quotas.
6. Mortgage applications climbed for the first time in six weeks. The Mortgage Bankers Association reported applications rose by 3.8% after plunging 29% in the prior week, underscoring housing market volatility. Here's what you want to know.
7. Investor Michael Burry of "Big Short" fame said he isn't shorting Tesla right now. But he added the EV maker is hugely overvalued, and compared the buzz around Elon Musk's company to hype during the dot-com bubble — and that he should be betting against the company.
8. This 39-year-old owns 21 rental homes and recently quit his 9-to-5 after building up his real estate portfolio. After 18 years of growing his property assets, he's focused on playing the long game and taking a conservative approach to investing through these four strategies.
9. Goldman Sachs recommended investing in this batch of stocks that are highly efficient at generating profits. As the Federal Reserve continues to hike rates, earnings and stock valuations are facing pressure. Here is the Wall Street bank's list of 50 names that can still generate returns.
10. The crypto bear market will continue if bitcoin confirms its recent breakdown below $20,000, Fairlead's Katie Stockton said. The technical analysis-based research firm said that secondary support for bitcoin stands at $13,900, and short-term momentum has shifted negative. Dig into the numbers.
Edited by Jason Ma (email@example.com) in New York and Hallam Bullock (@hallam_bullock) in London.
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