Good morning!
Today is Fed day, which means that the Federal Reserve determines the interest rate policy. Clearly there will not be any changes in interest rates since the Fed typically discusses potential changes well in advance of a change. What is important today is what J Powell will say. There are many that say that the Fed is late to address current inflationary issues since there are many areas of the economy where prices have risen. But the Fed has continually communicated that the current inflation is “transitory” or temporary and it will not be pervasive. A good example of inflation fears is today export prices rose 2.2% and was estimated to rise .8%. The bond market, which prices in rates based on future inflationary pressure, is telling us that inflation in fact is transitory. After the export prices news, the bond rates went down. That is exactly the opposite for what would be expected. Is the bond market wrong? It could be. At least for now, it believes what J Powell has been saying. Today is important because J Powell may in fact communicate that the Fed may start preparing to stop their bond purchases, which means removing liquidity so that inflation does not runaway. If that happens, the stock market would most likely go down but it may also go up since the Fed may be preempting the rise of inflation. So the bottom line is anything can happen and we just don’t know what Powell will say or what the reaction of markets will be. So what do we do as traders and investors? Continue to invest for the long term and trade based on the prices that are in front of you. Keep it simple!
