Beyond the headlines of the 25 bps fed funds hike, here’s what else has changed:
- Terminal rate forecast up i.e the rates are expected to end up even higher
- GDP estimates cut significantly for the current year
- Stagflation risks are on the Fed's radar with upside risk on inflation and downside risk on growth
- Our read was that price stability will retain primary importance for the Fed, and maintaining employment/growth is lower down the list of priorities
The US Federal Reserve hiked rates by 25 basis points, moving the target fed funds target range to 0.25%-0.50%. The Federal Open Market Committee (FOMC)’s projections (dot plots) show a median of 7 rate hikes this year as the market (implied by interest rate futures) had already priced in.
BUT, the change was that the terminal rate (i.e. the interest rate peak for the current hiking cycle) projection was increased by +70bps to 2.8%. Meanwhile, the neutral rate projection (i.e. interest rate that supports the economy at full employment/maximum output while keeping inflation constant) was lowered by 10bps to 2.4% from 2.5%.
This implies that the Fed intends to hike rates to a level that is 40bps above neutral to tackle high inflation.
The FOMC’s GDP forecast remains constant in 2023 and 2024 at 2.2% and 2.0% respectively while the current year (2022) number has been slashed substantially from 4% to 2.8%.
On the other hand, both headline and core inflation forecasts were bumped higher with Core CPI projected at 2.6% in 2023 vs 2.3% previously, despite a decent number (7) of rate hikes being penciled in for the year.
It is noteworthy that stagflation risks are on the Fed's radar, as implied by the materially upgraded inflation profile vs the balance of risks to growth.
During the Q&A, Chair Powell suggested that every meeting is a live meeting (i.e. open for a rate hike) and that if it's appropriate they may hike by more than 25bps in any given meeting.
On the balance sheet run-off or quantitative tightening, Powell exclaimed that the committee has made “excellent progress” on the balance sheet plan and that they could finalize a balance sheet plan at the next meeting in May.
Based on the Chair’s long-winded response to a question about the trade-off between higher unemployment and accelerating inflation, our read was that price stability will retain primary importance for the Fed.
Finally, looking at the market reaction, the curve flattened significantly as 2Y yields touched ~2% before settling closer to 1.91% while 30Y yields declined 2-3bps to 2.45%. The spread between 5Y and 10Y treasury yields briefly turned negative. 10Y real yields (inflation-adjusted yields) jumped ~9bps to -0.63%
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Economists Think Dollar's Fall May Explain the Recent ‘Rally’ by Steve Liesman
Einstein taught us about relativity in nature. Now come Devina Mehra and Shankar Sharma of First Global to teach us about relativity in financial markets -- and raise some serious questions about just what is driving stock prices.
First Global reports are quite credible and, on occasion, more than that.
What prompts this mention is Intel's earnings report and the fact that First Global has had a pretty good bead on the company and its stock.
AMD up again following First Global upgrade to ‘buy’ (AMD) By Tomi Kilgore
Analyst Kuldeep Koul at First Global upgraded Advanced Micro Devices (AMD) to "buy" from "outperform," given the "exceptional traction" that the chipmaker's Opteron line of processors has been able to get.
Baidu Climbs on First Global’s ‘Outperform’ Outlook
Baidu Inc., the operator of China’s most-used Internet search engine, rose to the highest price in two weeks after First Global rated the shares “outperform? in new coverage.
Personality counts: Walmart's frugal, but Target charms
"It's better to take a slight hit on [profit] margins and keep on moving and inventing," says First Global Securities. And at least for now, Target is inventing in a way that appeals to consumers with money to spend.
At 11 times trailing earnings, Energizer is cheaper; Gillette's multiple is 25. But cheaper doesn't mean better, says First Global.
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We can load above testimonials on site as a scroller, and just below that we can add a section for compliments . Below tweets are comments and praises are related to our content, performance and some our direct compliments to you.
ADIT PATEL @ADITPAT11226924
Good team... Special mention @KarmathNaveen .. he is soo helpful anytime of the day or night..
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I have 8 small cases and your has been the most rewarding ones .. thank you Devina.
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There is absolutely no doubt that she is one of the best investors of India in modern times but more importantly, she shares the most sincere and sane advice with retail investors.
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"The ability to be comfortable with being outside consensus is a superpower in investing...and in life." Devina ji hits the nail on its head!
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Congratulations @devinamehra mam! All the best for long term returns as well.
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This is the wonderful session I have ever attended till date. One of the most fruitful hour of my life. Devina madam, ur clarity on financial mkts is simply superb.The way u portray the facts supported by "data" about stock mkts is really astonishing.I will listen again.Thanks.
I loved to read your journey, insight and philosophy. It's a pleasure to read and know of your takes on market and life.
Check & follow @devinamehra's timeline for lots of post debunking such rosy stories. Also, she gives amazing 🤩 sector directions/hints.
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Good actionable insights, great article!
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Very difficult to emulate such traits. I listen her past interviews from youtube.
One of the brightest minds in the world of finance :)
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Excellent performance. Flexibility is the key as you have mentioned it earlier also. Cannot have finite rules for infinite mkt opportunities.
To be honest, the insights which Devina madam brings in is very enriching..have learnt a lot from them...
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One of the most accurate analysts :) I always look forward to you interviews mam
Abhijeet Deshpande @AbhijeetD2018
Madam, It is always a treat to read your insight, not only on business but on other topics also!!
Thanks for this wisdom ma'am. Always love hearing your thoughts on everything equity. :-)
Excellent points! Can clearly feel this thread is a product of marination of many books and years of experience. 👍
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