Notifications Bell

Markets reacted to Fed minutes

Markets reacted to Fed minutes

The Fed's May meeting minutes released yesterday confirmed a less hawkish approach by policymakers

They all agreed that the central bank should move quickly on interest rate hikes to control inflation but downplayed the odds of a recession. They pointed to a tight labor market, household spending, and a business fixed investment that has remained strong.

Interest rate hikes will continue as expected, with two 50 bps rises in the next two meetings, probably followed by some 25 bps hikes, to assess the effect of this restrictive monetary policy at the end of the year. Even some members of the Fed, such as Bostic, the President of the Federal Reserve Bank of Atlanta, have suggested pausing the pace of increases in September.

Everything indicates what the market anticipated - the 10-year bond yield at 3.20% - had far exceeded what the Federal Reserve is now announcing. Treasury bond yields continue to decline, with the 10-year yield around 2.75%.

This shows that the Federal Reserve, despite acknowledging that inflation is its concern, is also considering the slowdown in the economy caused by the conflict in Ukraine and the measures taken by the Chinese government to combat the pandemic. Therefore, as we have commented on previous occasions, the economic figures related to the economy’s growth and those of inflation have become more important.

This less "hawkish" bias of the Federal Reserve is valued positively by the markets. We must not forget that the deep falls experienced by the Wall Street indices have been largely due to expectations of a more aggressive Federal Reserve in its monetary policy. Now that this is ruled out, the markets may start to gain some momentum or stop falling as they have in the last six weeks.

North American indices ended the session higher, with the Nasdaq as the best performer with a rise of almost 1%. Now, it remains in a lateral behavior that may be forming a base from the last five sessions from where it could pick up. The personal consumption expenditure figures that will be published today and tomorrow (preferred by the Fed to assess inflation), could be the trigger for the start of this movement.

Interfaz de usuario gráfica, GráficoDescripción generada automáticamente

Sources: Bloomberg, Reuters

This information/research prepared by Miguel A. Rodriguez does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views and consequently any person acting on it does so entirely at their own risk.

The research provided does not constitute the views of KW Investments Ltd nor is it an invitation to invest with KW Investments Ltd. The research analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.

The research analyst is not employed by KW Investments Ltd. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation or particular financial needs before making a commitment to invest.

The laws of the Republic of Seychelles shall govern any claim relating to or arising from the contents of the information/ research provided.