Yesterday the FOMC had its first meeting of the year and gave us a 0.25% rate hike. Typically when these have occurred, we cover the entire press conference, initial statement, and market outlook moving forward.
This time, we’re going to shorten our coverage of the FOMC and discuss the broader fiscal picture of the US government and the short-term market outlook as well as the long-term. Over the next 1-2 months the government shutdown will dominate fiscal policy and debt issuance, which creates a fairly straightforward market environment for us.
Our previous coverage of the FOMC was in November and can be found here.
Table of Contents
FOMC Meeting
Government Shutdown
Treasury General Account
Market Outlook
Conclusion
Internal References
1. FOMC Meeting
Powell’s initial statement heading into the meeting can be watched here.
He talks a big game about inflation as if the Federal Reserve is in control, but they are not. They are merely following behind market developments, they are not setting them. This is the first time in a while that the overnight lending rate (4.5%-4.75%) is higher than the core inflation figure that the government uses (4.4%). Meanwhile, treasury yields have been cooling off with almost all treasury yields across the board lower than the overnight rate.
So what do Powell and the FOMC have to react to now to urgently push them to raise rates higher? Nothing. In the press conference, he did state that they see the current rate hike of 0.25% to be sufficient for the future. Their next meeting is on March 22nd. From this current statement, we can predict another 0.25% rate hike from the FOMC. But I don’t think we’ll get that. I’m expecting a 0% rate hike from them, and depending on how the government shutdown is moving and how much the TGA (Treasury General Account) is drawn down we may get announcements about changes to the Overnight Reverse Repo Facility in order to bring more liquidity to the treasury markets.
As much as yesterday’s meeting was business as usual, I expect the next meeting to very much not be business as usual. It’s quite possible that yesterday’s meeting will be the last rate hike of this cycle. We finally got a relatively peaceful meeting, with a mildly bullish outlook for the markets, and everyone was more or less happy (except Michael Burry, lol). But it’s going to be the last one of these like this that we’re going to get for a while.
Burry has always been perpetually early to everything, and he’s early to this as well. Our goal here with this substack is to not be early but to be on time. We’ll discuss some of the market implications up ahead, but obviously, you should not be selling anything right now. And after “the sell moment” that Burry cryptically tweeted about this past Tuesday occurs, it will most likely actually be a moment to be ready to load up and buy instead, but we’ll discuss that further in section 4.
For now, all you need to know is that we got a 0.25% rate hike, a fairly calm meeting, and a short-term bullish outlook for markets across the board.
Soak it in. Smell the roses.
When the market becomes chaotic again, you will yearn for times like these. This is the eye of the storm. It’s peaceful, it’s calm, it’s everything you want from a market if you are a long-term holder of assets.
Soak it in. Absorb the feelings, the relatively good emotions, and remember how it feels. This feeling is going to be what will partially sustain you during the chaos that may come. Whenever you’re having a good day, a good week, or a good month, it’s important to be as present as you can for it. To remember the details, the senses, and just to be as in touch with how you feel as possible. You want your strongest memories to be the ones where you’re feeling good, and part of how we do that is to recognize these moments and to drink them in. In markets, one way we do that is by taking some small profits. If you’ve had any riskier investments that have gone on a run, take a little bit off the table and put it in your pocket. It’s hard to have FOMO eating at you for not selling earlier when you in fact did sell a small amount earlier.
90% of this is managing and regulating your own emotions. The other 10% is knowing what the market is doing and why. Consider me as your own personal Charles Xavier. So take this time to self-regulate as best you can. Now, let’s get into the other 10%… the knowing.
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