Take a (Rate) Hike

The market was down again today, as it has been for the past week. The passion for trading is there but the opportunities haven’t been the greatest with most of the moves happening overnight and then chopping throughout the day. Fintwit will tell you to “scalp” or “quick flip” or whatever it may be at the time but in all honesty, it doesn’t work with volatility being as high as it is once again. The VIX has returned to about 33 a share, the same level it stuck around all of May causing a lot of downward movement in the market as the federal funds rate continued and continues to increase. Yesterday, Jerome Powell steered a bit off course, raising interest rates by 75 BPS (.75%) instead of his scheduled 50 BPS (.50%). 

Interest rates are now 1.75% instead of 1.5%, causing some fear in the markets. In addition, the Committee will continue reducing its holdings of Treasury securities and mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that was issued in May. According to Yahoo, “projections released Wednesday, the median Fed policymaker expects to further raise interest rates to roughly 3.4% by the end of the year. That would suggest another 1.75% in total rate hikes, spread across the remaining four scheduled policy-setting meetings this year.” The abrupt change in rates follows a record-high inflation report last Friday. The Fed is doing its “best” to fight inflation. 

An aggressive step in raising rates could combat inflation in the next turn around but as it stands the market isn’t buying it. On Thursday, the S&P was down 3.31% following the Fed meeting. Volatility was up 11% as we head into a three-day weekend and there isn’t an ounce of a bid left. Options buyers remained active with Puts leading Calls today and activity being up 11%. With crypto unfolding as we speak, it is likely assets continue to fall. Housing prices are shifting lower as mortgage rates rise above 6%.