Wednesday, November 30, 2022

"50 bps in December", or "Stay the course until the job is done"

Mid-week market update: In the long awaited Powell speech, the Fed Chair signaled, "It makes sense to moderate the pace of our rate increases...[and] the time for moderating the pace of rate increases may come as soon as the December meeting". The market reacted with a risk-on tone and began to discount a series of rate cuts in Q3 2023.

Every Fed speaker this week has said that the Fed isn't going to cut rates. Powell concluded his speech with:
It is likely that restoring price stability will require holding policy at a restrictive level for some time. History cautions strongly against prematurely loosening policy. We will stay the course until the job is done.
The change from 75 bps to 50 bps has long been anticipated. Is the risk-on reaction appropriate in this instance? Should investors buy "the 50 bps in December", or sell the "stay the course until the job is done" nattative?

The full post can be found here.

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