Editor's Note: Below is a note written by Hedgeye editor Eric Wallerstein and junior Macro analyst Ryan Ricci.
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The Fed released their January decision today at 2:00pm ET, followed by the ever-so-exciting Powell Presser at 2:30pm.
Powell spoke, equities dropped, the yield curve flattened, and markets decided the Fed will hike into the heavens. All in a day's work at the Eccles Building.
- The announcement was extremely vague, leaving minimal insight into their plan for reducing the Balance Sheet
- The Yield Curve flattened as the 2-year jumped to recent highs (always love to see a flattening curve as growth slows...)
- Markets are pricing in even more hikes through 2022 (got spooked... we'll see what happens tomorrow morning)
- Equities took a hit, finishing flat to down after a major +2% open (transitory price gains)
- Listening to Powell is still a brutal endeavor (in line with expectations)
BOND MARKET REACTION
The Yield Curve got RUN. OVER. Down ~ 50 bps on the back of Powell's presser.
And the market increased expectations from 4 hikes through 2022 to 4.5 HIKES (~ 50% chance of a fifth with futures pricing in rates at 1.212% by year-end).
Markets see Eccles as a hawk's nest right now...
Realistically, the Fed committed to stopping asset purchases by the March meeting, but not much else. The statement/presser was fairly vague and noncommittal, nothing new from the monetary crew, but alas; still rattled markets.
Powell & Co. cited Omicron and the potential for new variants as key economic risks and said the labor market has made "remarkable progress" as recent prints have been strong. Considering Jobless claims jumped up to +286K last Thursday, far above consensus expectations at +200K and the prior week's +231K, we wouldn't be so sure about that.
We broke down underlying US Economic Fundamentals and Powell's precarious predicament in yesterday's note "Powell, Take A Hike")
The FOMC has their work cut out for them at the March meeting. Surely a bigtime #Quad4 bear market with some (continuing) bad economic prints won't help them out. That being said, not exactly feeling sorry for them; the predicament they're in now is their own doing.