THE FED GIVE THE MARKETS HEARTBURN. Markets greeted the news with a strong bout of volatility. By Todd Horwitz, Bubba Trading

 

THE FED GIVE THE MARKETS HEARTBURN

Fed Looks Ahead

Federal Reserve officials see increased economic growth and an uptick in inflation as justification to continue to raise interest rates gradually, according to minutes from the central bank’s latest meeting. Though the policy making Federal Open Market Committee chose not to hike its target rate at the Jan. 30-31 gathering, members indicated clearly that the path ahead for rates was higher. Markets greeted the news with a strong bout of volatility. Stocks first spiked higher, then receded as bond yields jumped, with the benchmark 10-year Treasury note hitting a fresh four-year high.

The minutes didn’t signal any immediate change in the Fed’s likely path of increases. But the stronger growth outlook, which was made before Congress approved a separate spending bill that should further boost economic demand this year and next, supports the current rate path and could serve as an important prerequisite for moving a touch more aggressively later this year.

Markets gyrated Wednesday. Investors appeared to initially welcome the Fed minutes, relieved that they didn’t signal the central bank was poised to ramp up its tightening efforts. But stocks and bonds fell after it became clearer the Fed might move more aggressively than anticipated later this year. The Dow Jones Industrial Average initially rose as much as 300 points but closed down 167 points, or 0.67%, at 24797.78. Government bonds also sold off after the release of the minutes. The 10-year Treasury yield closed at 2.943%, from 2.895% Tuesday.

“My initial read-through was it leaned a little hawkish considering the came before the last employment report that showed wages picking up and before the latest round of budget proposals. So, I was a little surprised when the market decided it wasn’t so hawkish,” said Kathy Jones, senior fixed income strategist at Charles Schwab. “I’m not really sure why the turnaround. Perhaps people read it a little bit more closely,” Jones added.

The January meeting was the final meeting for Janet L. Yellen, who concluded her four-year term as the Fed’s chairwoman in early February. Her successor, Jerome H. Powell, is scheduled to make his public debut when he testifies before House and Senate committees next week.

Keep those stops tight
Todd “Bubba” Horwitz

IN ASSOCIATION WITH

Financial & Political Commentary

 

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About the author

Todd Horwitz - Author of “Average Joe Options“. Todd began his trading career in 1980 at the CBOE. He was one of the original traders in the OEX & helped start the SPX. He is a member the CME where he trades S&P futures as well as foreign currencies & is a regular contributor to CNBC, Bloomberg, BNN, Fox & many other major news networks.