Stocks and Bonds Slip as Powell Downplays March Rate Cut
Stocks and Bonds Slip as Powell Downplays March Rate Cut
The S&P 500 is up 1.42% for the month so far
- The Federal Reserve held its main rate steady at 5.25% to 5.5%, as expected (100% chance, per CME’s FedWatch Tool).
- The tightening bias may have been dropped from the policy statement, but FOMC officials cautioned against expectations of a March rate cut.
- Stocks were trading near their lows of the day at the time this report was written.
The January Federal Open Market Committee (FOMC) meeting brought several consequential changes to the Fed's policy statement, although the changes may not have been dovish enough to appease stocks and bonds.
While policymakers left rates on hold at 5.25% to 5.5%, as expected, Fed Chair Jerome Powell’s press conference offered a clear assessment of the near-term path of interest rates.
The policy statement noted that “the committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%.” While Powell admitted the FOMC has confidence in how inflation has come down, it is not confident enough to suggest that a March rate cut is appropriate. More importantly, he noted that it may be unlikely that the FOMC would have achieved that confidence by the time of the March meeting.
The adjustment to rate cut odds was abrupt, with fed funds futures discounting a 35% chance of a 25-bps rate cut in March, down from 74% earlier in the day. The knock-on effect was imminent, with U.S. equities and bonds dropping in tandem. The S&P 500 (/ESH4) fell from a press conference high of 4929.25 to 4888 at the time this note was written.
/ZQ Fed funds futures forward curve (December 2023 to December 2025)
The question is now: What constitutes “greater confidence” about the path forward? Powell made it seem like another two labor-market and inflation reports may not be enough by March. Four iterations of each will be released by the May meeting, however, which may be enough.
The /ZQ (fed funds) term structure now shows an expectation that the Fed will begin cutting rates in May 2024. Five rate cuts in 2024 are still on the table according to current market pricing.
Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx
For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro.
Trade with a better broker, open a tastytrade account today. tastylive, Inc. and tastytrade, Inc. are separate but affiliated companies.
Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.
tastylive content is created, produced, and provided solely by tastylive, Inc. (“tastylive”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, digital asset, other product, transaction, or investment strategy is suitable for any person. Trading securities, futures products, and digital assets involve risk and may result in a loss greater than the original amount invested. tastylive, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastylive is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparisons, statistics, or other technical data, if applicable, will be supplied upon request. tastylive is not a licensed financial adviser, registered investment adviser, or a registered broker-dealer. Options, futures, and futures options are not suitable for all investors. Prior to trading securities, options, futures, or futures options, please read the applicable risk disclosures, including, but not limited to, the Characteristics and Risks of Standardized Options Disclosure and the Futures and Exchange-Traded Options Risk Disclosure found on tastytrade.com/disclosures.
tastytrade, Inc. ("tastytrade”) is a registered broker-dealer and member of FINRA, NFA, and SIPC. tastytrade was previously known as tastyworks, Inc. (“tastyworks”). tastytrade offers self-directed brokerage accounts to its customers. tastytrade does not give financial or trading advice, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastytrade’s systems, services or products. tastytrade is a wholly-owned subsidiary of tastylive, Inc.
tastytrade has entered into a Marketing Agreement with tastylive (“Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’s brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade. tastytrade and Marketing Agent are separate entities with their own products and services. tastylive is the parent company of tastytrade.
tastycrypto is provided solely by tasty Software Solutions, LLC. tasty Software Solutions, LLC is a separate but affiliate company of tastylive, Inc. Neither tastylive nor any of its affiliates are responsible for the products or services provided by tasty Software Solutions, LLC. Cryptocurrency trading is not suitable for all investors due to the number of risks involved. The value of any cryptocurrency, including digital assets pegged to fiat currency, commodities, or any other asset, may go to zero.
© copyright 2013 - 2024 tastylive, Inc. All Rights Reserved. Applicable portions of the Terms of Use on tastylive.com apply. Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastylive’s podcasts as necessary to view for personal use. tastylive was previously known as tastytrade, Inc. tastylive is a trademark/servicemark owned by tastylive, Inc.