Suncor Energy Inc. T.SU

Fed Meeting Today - Some Thoughts

[Experienced]

The US Fed kept rates unchanged as was expected and so when the announcement came out there was essentially little market reaction.

In the subsequent news conference, Powell, IMO, was unusually timid in his responses.  Difficult to say why this was the case.  That said, he did announce a "bombshell" which wasn't in the PR.  In an answer to a question, he all but ruled out a rate reduction for the March meeting.  Going into today, the market were pricing a bit better than a 50/50 chance of March rate cut.  His announcement had an immediate impact on the stock market and a smaller impact in the bond markets.

Soooo...why is this important?

Well the market was pricing in a number of rate cuts this year - possibly in the order of 100-150 basis points with bulls having as much as 200 - 225 basis points.  If the Fed doesn't start cutting in March and given that historically, it tries to do little in an election year closer to the date of the election, a delay in the start of cutting rates means that the total level of cuts this year may well less than expected.  Given that stock market valuations and interest rates are linked (in an inverse relationship), less rate cuts than expected will lower expectations about equity valuations this year.

The other "nail in the coffin" by Powell was that they would have to see a number of months of persistent lack of inflation and a decent job market before acting.  Such a statement suggests that rate hikes may well be less than thought.

What I find interesting about all this is that at current interest rates and continuing QT by the Fed that the current monetary stance by the Fed continues to be restrictive (in plain English - they are still trying to slow things down).  So the fact that they are not predicting a rate hike for at least three more months (ie April) suggests that they still have concerns about inflation and that more needs to be done to get it down or perhaps keep it from resurging.

For my part in terms of my asset allocation, which as I have stated here many times is cautious, the fact that the Fed is being cautious then it doesn't give me a particular reason to change my allocation.  This combined with the short run market sentiment which is in the Excessive Greed category suggests that keeping dry powder is a good strategy at least for the next couple of months.

[Torontojay]

There is now a 95.2% chance, according to Fed Funds Futures of at least one rate cut by May 1. There are several risks that lie ahead. These are,  1) The Bank Term Funding Program ends on March 11. Remember Silicon Valley Bank last year? Well, the Fed will no longer be a buyer of garbage collateral. Now we get word  of another regional bank catastrophe. I'm not totally convinced

[lifeisgood1010]

Once again, great instructive post  Torontojay Thanks. This is preliminary news on today's OPEC meeting.This meeting should not be a big product mover. WTI is still in it's sideway movement since Nov but it looks like a small upward movement. This is seen with my big pink glasses.Seriously, i am clueless on the short term direction of oil. But if Jay is correct, the

[Experienced]

For those here that have no idea what Jay is talking about in terms of Reverse Repo....here is an article from a few months ago that might help.. https://www.reuters.com/markets/us/feds-reverse-repo-facility-drawdown-looms-large-balance-sheet-debate-2023-10-31/