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U.S Fed will raise Interest Rates this Week Once Again

by with No Comment Federal Reserve, Interest RatesMajor Global Equity Indices

U.S Fed will raise Interest Rates this Week Once Again

September Federal Reserve Pronouncements on the Calendar

The U.S Federal Reserve will raise their Federal Funds Rate by another 0.75% this coming Wednesday the 21st of September. If they do not it would send a shock wave through the markets, inflation data via Core CPI statistics, which were published nearly ten days ago in the U.S cemented the hike to come.

The hike has already been factored into the global markets. Forex has essentially gone ballistic via a strong USD, the GBP/USD is shown below as an example. The British Pound is now touching lows it has not seen since 1985 against the USD. Speculators may be tempted to trade this week believing they are smarter than the ‘crowd’, and that may be the case – congratulations if you are one of the few, but this may simply be an outcome of luck too. Many retail investors and speculators have been mauled in the current trading environment.

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GBP/USD 1 Year Chart showing new Lows

Investors are Struggling as Clarity is Sought

Indices are struggling, gold is sputtering, U.S Treasury bonds are inverted, cryptos are under scrutiny. The U.S Fed is between the proverbial rock and hard place. Economic conditions promise to stay stormy in the next month and a half too. U.S elections will have an affect on behavioral sentiment. Certainly the Fed’s outlook which will be delivered on the 21st of September will cause turbulence also. A long term view via dividends from the S&P 500 remains a benchmark for investors seeking returns. Short term traders on the other hand must fight through the ‘noise of the experts’.

  • The U.S Fed is nearly certain to raise their key interest rate by 0.75% this week.
  • The key clarity investment houses seek is outlook regarding potential interest rate hikes to come later this year and early in 2023.

Where have the Gurus Gone?

Many self proclaimed gurus who claimed enlightenment only a year and a half ago, and offered their ‘insights’ regarding investment promises to eagerly awaiting traders are now hiding in their safe places and eating their words. Very few assets have proven profitable in the past year. Many investors are not used to the idea of merely preserving money, they have worked on the premise of solid gains made with speculative decisions which have been carried upwards by positive sentiment. Dealing with actual bear markets has not been a shared experience for many in the world of investing the past 13 years and the fresh scars are visible.

The ability to make money in this environment is difficult. The inverted bond yields in the U.S are evidence that folks are putting their money into relatively short term assets and trying to secure some of their capital. Traders can certainly wager this coming week in a variety of ways, but short term positions need to be considered with the knowledge volatility will be part of the terrain. Risk management is essential.

U.S Federal Reserve is in a Difficult Position

The notion that the U.S Federal Reserve will not stop raising their interest rates after the September meeting pronouncements this Wednesday still needs to be digested in many investment spheres. A Fed Funds Rate later this week of 3.25% is almost a 100% certainty. Speculation about a borrowing rate at 4% later this year may be realistic. And the question about how long the ‘transient’ inflation remains – yes, please laugh out loud, is a tough consideration. The outlook remains chilling.

While higher fuel costs have simmered a bit and have come off their highs, energy remains problematic and is having an effect on the costs of logistics, food and manufacturing. Energy concerns will remain the devil within the details. Some may want to look at the ISM Manufacturing data from the States for clues, but its merits remain debated too.

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Words Matter in the Financial World and Noise is Dangerous

by with No Comment Federal Reserve, Interest Rates

Words Matter in the Financial World and Noise is Dangerous

As the financial markets trade in a nervous fashion the amount of ‘noise’ that traders must deal with has increased.

Markets Remain Jittery and Day Traders Pay the Price

The financial markets remain in a nervous state, and this is seen every day via the results from the major equity indices which continue to traverse within the framework of a threatening and potential bear market. Many new traders have not dealt with serious downturns in the financial markets before. Because human instinct is almost always positive, many speculators who participate in the markets tend to be buyers.

However in the past handful of months, many day traders who have been buyers have certainly found a difficult trading environment. Whether they are trying to pursue long positions in equity indices or cryptocurrencies, the speculative landscape has likely cost day traders money and produced trading accounts are negative, or worse simply have been closed.

U.S Federal Reserve Not Making Things Easy

The broad financial markets are likely to remain nervous in the coming months. The U.S Federal Reserve has a major interest rate announcement which will be delivered in the middle of June, and another rate hike of 0.50% is expected. What has the financial world nervous is not the anticipated interest rate hike which has already been digested into the marketplace, but what the Fed will say regarding their outlook regarding additional rate hikes in the summer. The reason why this is unclear is because the economic landscape remains cloudy and hotly debated.

The Federal Reserve has not helped investors because they have largely misread the economic landscape and caused problems because of past statements. Last year the Fed insisted inflation was transitory, meaning that it would soon diminish, this obviously did not happen. Now the best the Fed can do is to hope that inflation becomes less strong and that disinflation occurs. Meaning the U.S central bank is simply hoping it can decrease the rate of inflation.

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Words matter in this trading landscape for investors because the Federal Reserve’s policy has not exactly been met with popular fanfare. Many market participants feel that the Fed has pursued bad economic policy and that they have reacted slowly to data which was abundantly clear regarding supply problems, and the rising cost of production due to climbs in energy prices.

The Biden Administration and Energy Costs

While some in the Biden administration try to point the finger at the Ukrainian war with Russia as the culprit. Most people are not that naïve. Energy prices were on the rise before the war and it can be seen that the bullish trend in the price of crude oil has existed since the Biden administration took power.

President Biden during his recent trip to Japan spoke about inflation caused by rising energy prices that were in ‘transition’. He made it clear that rising energy prices in the U.S are happening because the U.S is following a green environment policy and that the shift in regulatory mandates is driving the costs of energy higher. This combined with the Federal Reserve’s frequent talk about inflation and its desire to raise interest rates has made for a dangerous combination.

Noise will remain at a High Volume

Inflation may come down in the coming months. Demand for certain commodities may erode to some extent. However the cost of energy is probably going to remain high throughout the summer. The additional shadow of mid-term elections in the U.S and the potential for a shift in power in the U.S Congress are going to affect nervous sentiment among financial institutions in the coming months leading right up to November.

Traders need to prepare for noise which will come from pundits as they express their opinions. Speculators who are day traders also have to take into consideration that their short term goals are in direct opposition to that of long term financial institutions. The difference in trading outlooks and monetary capabilities make this a difficult environment for day traders in the current market conditions.

Following short term trends for day traders based on behavioral sentiment is viable. Technical charts can be used to gather short term evidence, but this will not stop the constant threat of reversals and spikes in price velocity from suddenly gathering power and creating momentary bedlam.

Eliminating the noise generating from pundits who can walk away from their statements without any consequences is a must. Unfortunately the comments coming from the Federal Reserve and White House are often hard to ignore and cause reactions in the marketplace; because their words matter even if they sometimes seem to forget what they have said in the past.