FED Bails on the Stock Market

This video from Michael is giving a break down of the fed meeting last week giving the key questions asked to Jerome Powel. Here is what to expect.

What is the fed going to do with its current asset purchases, treasuries, mortgage-backed securities?

Starts at: 0.57

  • Reduce purchases to 30 billion dollars in February.
  • Completely stop asset purchases in March.
  • Lifting interest rates in March, but not definite yet.

These are the questions asked in the meeting:

Question: What we are all asking is how much will they lift the rates?

Starts at: 1:31 Answer: 0.25% hike or a full .50%. of course, the fed could not speak of this yet and are using all the tools to help fight inflation. How long will they be lifting interest rates? No Response.

Question: What will he do if interest rates hurt the job market

Starts at:2:01 Answer: The labor markets are so strong they have huge amounts of room to lift interest rates before it starts to hurt the job market and economy.

Question: What is the biggest risk of all right now?

Starts at:[2:45}(https://youtu.be/7vJFg8PBcfA?t=165) Answer: If inflation doesn’t go down and they have to lift interest rates more then expected.

Supply chain problems

It was also stated in the meeting that supply chains will not be fix in 2022 and will not be resolved until 2023.

Corona Virus

The fact we are still living in this pandemic could cause a short sharp reduction in economic activity.

Question: What did he think of the short sell of NASDAQ and the DOW JONES?

Starts at:3:47
Answer: Our focus is on the economy and price stability. There goal is full employment stable prices.

Question: Will it be anything like the last rate hike cycle in 2018 which caused the S&P 500 to fall 20%?

Starts at:3:47
Answer: In that time, they raised interest 2% he stated this time inflation is much worse then then back then inflation was only 3%. He stated the economy is much stronger so they will have to raise interest rates much higher this time.

Question: The Balance Sheet which has double in size from 3 to 9 trillion.

Starts at4:22 Answer: The balance sheet is too big “he is going to have to reduce the balance sheet significantly”

This is probable whey the treasury market is uneasy, and yields are spiking. Sell off treasury’s = Bonds prices Down = yields Up

Question: When and how much this would happen?

Starts at4:22 Answer: He did not give a specific time but hinted it May/June after a couple rate hikes. Speculation by Goldman & Sacs at a rate of 100 billion per month.

The next date to watch out for is February 10th when we receive the next CPI data

  • Inflation up = more pain for markets.
  • Inflation down = may see a rally.

Other factors causing markets to crash.

  • Valuation to high.
  • No more stimulus.
  • Consumer in record dept.
  • Saving rates are plummeting.
  • Consumer sentiment and consumer confidence is falling.