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Fed Holds Firm – Plus, Higher for Longer

This piece was originally published on September 20th, 2023.

The Federal Reserve completed their September meeting and as expected, kept the fed funds rate unchanged. The “surprise” was in the dot plot. The dot plot is where each Fed Governor indicates where they expect rates to be at various points in the future. It further confirmed the intention to raise rates once more this year, something the market was beginning to doubt. Based on some of the comments I’m seeing on FinTwit (financial Twitter), people still doubt there’s another hike coming.

The bigger “surprise” is the Fed changed their expectations for 2024 from 100 basis points (1%) of cuts down to 50 basis points (.5%) of cuts. This is more hawkish than the market expected and reiterates the Powell mantra of “higher for longer”.

The Fed also expects the long-term (2026) neutral fed funds rate to be 2.9%. Absent a worldwide recession, I’ll take the over on that bet. Neither higher rates nor a worldwide recession would be a positive for stock prices.

The reason I’m putting “surprise” in quotation marks is today’s hawkish stance is exactly what DKI predicted. As Powell explained why the Fed was more hawkish than the market, the NASDAQ traded down, and as I write this, is down 1.3% on the day. This is why the DKI portfolio is so heavily hedged. Premium subscribers are invited to check out the Current Recommendations page where we have all of our hedges outlined. Unsurprisingly, volatility ($VIX) is up today as well.

IR@DeepKnowledgeInvesting.com if you have any questions.

 

Information contained in this report is believed by Deep Knowledge Investing (“DKI”) to be accurate and/or derived from sources which it believes to be reliable; however, such information is presented without warranty of any kind, whether express or implied and DKI makes no representation as to the completeness, timeliness or accuracy of the information contained therein or with regard to the results to be obtained from its use.  The provision of the information contained in the Services shall not be deemed to obligate DKI to provide updated or similar information in the future except to the extent it may be required to do so. 

 

The information we provide is publicly available; our reports are neither an offer nor a solicitation to buy or sell securities. All expressions of opinion are precisely that and are subject to change. DKI, affiliates of DKI or its principal or others associated with DKI may have, take or sell positions in securities of companies about which we write. 

 

Our opinions are not advice that investment in a company’s securities is suitable for any particular investor. Each investor should consult with and rely on his or its own investigation, due diligence and the recommendations of investment professionals whom the investor has engaged for that purpose. 

 

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