Market Insights: Today’s FOMC Meeting, Rate Hikes, Bull and Bear Sentiment

This afternoon at 2pm EST the Fed will be announcing its rate hike decision. The decision comes on the heels of yesterday’s CPI release. May CPI rose by 0.1% from a month ago and 4% from a year ago, which was is the lowest level, in about 2 years. All numbers remained in-line with consensus estimates.

After the CPI release, pricing in the fed funds market shifted as traders priced in a 93% chance that the Fed will not raise rates today. Although it is likely the Fed will hold rates steady at 5%-5.25%, the potential for a 25bp rate hike in July still remains as the data continues to evolve. Additional questions remain on how long it will take for the Fed to reach its 2% inflation target. Additional insight on that timeline should be included in today’s announcement.

Bears and Bulls: Trends, Chatter, Concerns:         

Bear Talk – Higher-For-Longer Fed and Liquidity: The potential for a 25bps rate hike in July with no 2H rate cuts is a plausible Bear scenario. Additionally, some may still be expecting a hike to come later today based on Feds tightening bias. Liquidity drain is another concern for Bears with TGA rebuild, QT and TLTRO repayments. In addition, equity supply is seen as headwind due to companies and investors selling shares at fastest pace in years.

Bull Talk – Tightening Peak and Better Than Expected Earnings: With CPI coming in at expectations and inflation leveling for now, Bulls are viewing the tightening cycle to be at its peak and are moving the central bank to the sidelines. Focus is on the 20% gain in the S&P 500 and positive historical signaling for further upside. To further positive encouragement, earnings, guidance and revision trends all came in better than expected as loans and leases have been up slightly since early March indicating no further signs of a credit crunch.