This week Fed Chairman Powell indicated in testimony before Congress that he is getting more hawkish about raising Fed Funds interest rates in order to fight inflation. This was the result of an uptick in inflation in early February. Powell indicated the Fed would not stop raising rates because the last CPI inflation numbers reversed up again, and the jobs situation indicates the economy is still not slowing. He indicated that the Fed Funds rate will likely need to be in the 5.75% to 6.0% range. That level is about 100 basis points higher than it was a month ago.
Friday, March 10 is the release date for the February Jobs report. If the jobs report exceeds expectations, it will give the Fed the ability to raise rates by 50 basis points. If the jobs report blows away the expectations, then we might see a 75 basis point rise or more.
The Fed meets next Wednesday to decide what to do.
We also expect the February CPI inflation report on Tuesday and the Producer Price Index on Wednesday before the Fed decision is released late Wednesday.
That is why the DJIA dropped 545 points on Thursday March 9th. The market was expecting another mild rate hike of 25 basis points until Thursday. The bond market is showing at least a 50 basis point rate hike is already baked in. Those bond guys are seldom wrong.
With that pullback on equities on Thursday, we also saw a real breakdown in the charts with the S&P500 breaking support at 3920. Next support is at 3780.
The Nasdaq Composite is about 200 points above it’s support. A move below 11,100 would also be a very negative indication. We could easily see that happen March 10, and most likely before the Fed Meeting on Wednesday.
In summary, the only things to stop that from happening would be a lackluster jobs report AND a report of lower inflation.
So Buckle Up! We are going to have quite a ride this next week.
The markets have dropped about 7% since the January CPI report a month ago. On the other hand, we could see about a 4% gain in the markets if the Jobs Report is lousy. Not looking likely.
I’ll write more between now and Wednesday.
Let’s Go Get the Money,
or at least keep what we have.
JimB