Friends

As the markets expected, the Fed raised the Fed Funds rate by a quarter of a percentage point and it now sits at 3.75%-4%. The reasons given had to do with inflation numbers being too high, the labor market being strong, and the consumer as illustrated by this morning's strong retail sales numbers still spending. If the markets had anticipated a rate hike, why then did stocks tumble? Well, the Fed Chair hinted that this would not be the last rate hike. His comment saying that they are “removing accommodation” says to me that the neutral rate was/is higher. If that is the case, then where does restrictive policy take the Fed Funds rate? One must restrict to curb inflation.

As mentioned, stocks sold off with the Dow Jones Industrial Average down 631 points to close at 51,461. The S&P 500 was down 33 points to close at 7,551. The Nasdaq Composite Index was down 3 points to close at 25,978. Gold was down $27 to trade at $4,307 per ounce, while oil was down $3.99 to trade at $101.84 per barrel WTI.

If folks thought that Fed Chair Warsh was just going to be a yes man for the President, that was put to rest today with the rate hike. We know the President doesn’t want higher interest rates. Remember, one of the backdrops of the bull market is recent years was that the Fed was eventually going to lower interest rates. That appears not to be the case anytime soon. Can stocks move higher despite headwinds from the Fed? They can, but I’m an old guy and was raised on the belief that it’s never good to fight the Fed. Having said that, markets participants might come in tomorrow morning with a totally different view of today’s proceedings. Stay tuned.

Have a nice evening everyone.

Jim