Good morning. I’m Phil Rosen, writing to you a few blocks from the Federal Reserve Building in Manhattan.
On Capitol Hill yesterday, Jerome Powell reiterated his warning that the Fed is more than ready to keep raising interest rates if necessary.
Inflation has not eased as easily as policymakers would like, and Powell believes that may just justify a steeper policy path.
He made it clear, however, that nothing is set in stone yet (traders have doubled their expected odds of a half-point increase at this month’s meeting).
“I stress that no decision has been made on this,” Powell said.
Let’s see what some top commentators are saying.
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1. Markets feel nervous about this Powell testimony. Depending on whose commentary you read, Powell’s conversation with lawmakers this week either lived up to expectations or represents a major shift in the narrative, from “we’ve got this” to “we’re snapping.”
A move back to 50 basis points at the Fed’s next meeting, from a 25 basis point hike last month, would be the first time the central bank has stumbled to the end of a rate hike cycle in nearly 30 years and a possible acknowledgment of a policy error. .
“The Fed is moving forward through a thick fog of data, and that suggests to me that it should avoid drastic moves in either direction,” Nobel Prize-winning economist Paul Krugman said in an op-ed this week ahead of Powell’s testimony.
This is not the most reassuring assessment of the situation, with some of the biggest commentators in the markets saying that a recession is just around the corner.
To Citadel Chief Ken Griffin — which last year earned $4.1 billion in profits after its hedge fund’s record year — is headed for a recession.
Household savings are shrinking and rising interest rates are stifling growth, he told Bloomberg on Wednesday.
Consumers had saved a large chunk of cash during the pandemic, but the subsequent overspending fueled higher inflation and put pressure on the Fed to tighten policy.
“We have the stage set for a recession unfolding,” the billionaire investor said.
He called on the Fed to be more clear and consistent with its messaging and squelch any hope of policy easing.
“Every time they take their foot off the brake — or the market perceives they’re taking their foot off the brake — and the job isn’t done, they make their job even harder,” Griffin said.
Meanwhile, the “Bond King”, Jeffrey Gundlach expects the Fed to go ahead with more rate hikes because the economy is showing too many signs of strength.
The only thing that could stop a bigger move is weakening labor market data, he explained.
“The only way it won’t is if the employment data and the unemployment rate … surprise to the downside,” Gundlach said. “That hasn’t been the pattern recently. If it comes in at or above expectations, I think it’s a lock that the Fed will go ahead with at least 50 basis points.”
What is your outlook for a recession over the next six months? Tweet me (@philrosenn) or email me (firstname.lastname@example.org) to let me know.
In other news:
2. U.S. stock futures fall early Thursday, as investors pick through Powell’s latest comments and brace for the jobless claims report due before the bell. Meanwhile, Silvergate shares are sinking after the key bank for crypto companies said it would shut down. Here are the latest market moves.
3. Deck Profits: Oracle, Applied Materials and JD.com, all references.
4. A top investment executive shared the approach behind garage band hedge fund ‘The Big Short’ that turned $110,000 into over $80 million. The executive also discussed how to use strategy in today’s stock market to make extremely cheap bets that garner “through the roof” returns.
5. Binance continues to grow in popularity with Sam Bankman-Fried’s FTX out of the picture. In February, the world’s largest crypto exchange saw its market share increase from 59% to 61.8%, marking its fourth consecutive month of gains. Those gains come as the company comes under increasing regulatory scrutiny.
6. Stocks’ rally won’t be affected by a hawkish Jerome Powell, according to Fundstrat. Market volatility will ease as inflation continues to fall, head of research Tom Lee wrote in a note to clients on Wednesday. “This testimony changes nothing, as the Fed’s actual path is a function of what happens to inflation.”
7. Housing market sentiment nears historic lows. Fannie Mae’s home buying sentiment index fell this week, while mortgage rates moved higher. Here’s what you want to know.
8. Bank of America shared four reasons why artificial intelligence is on the verge of an “iPhone moment.” The firm predicted the nascent space could have a $15.7 trillion impact on the global economy within seven years — and enrich investors in these 13 sectors along the way.
9. Adam Taggert’s financial advice channel on YouTube attracts millions of viewers every month. “People are so hungry for nutritious financial content,” he said. The creator shared why it’s been such a steep and fast success — and what’s next for the fledgling brand.
10. Warren Buffett’s Berkshire Hathaway bought another $355 million in Occidental stock. The group resumed the purchase of the energy company after a five-month break. After a three-day spending spree, Berkshire now owns a 22.2% stake in Occidental.
Edited by Phil Rosen in New York. Comments or tips? Tweet @philrosenn or email email@example.com.
Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London.