[dragontamer]

Not much to say here since this was foretold / expected.

All eyes on the 2:30pm press conference, where people will hope to divine the future from Powell's statements. I'm going to bet ~40 minutes of "Inflation isn't at 2% yet and we're committed to reducing inflation to that level".

I think what people really want to know is, where do these rate-increases end? In Sept. 22nd meeting, Powell thought 4.5% was roughly where things would end. Is the target rate higher now? Inflation is still strong, job numbers are also strong. Are we looking at additional hikes to 5% as we enter May 2023 or so??

[bern4444]

The answer from the meeting was effectively, "we don't know".

People continue to underestimate the final rate and duration we'll end up at.

The market shot up initially on a 3 line statement in the released notes that was interpreted as beginning of the end of rate hikes.

Then the press conference started and the market shot right back down as Powell said we don't know how high and how long rates will go for.

I'm banking on another 75 bps raise in December and then another in January and then maybe a slow down to one or two 50 bps raises and then maybe a 25 bps finale.

I'm starting to love the yields on bonds. 3 month T Bill at 4+% is sweet. Hoping to continue collecting this sweet sweet guaranteed returns that I can ladder into.

[dragontamer]

> The market shot up initially on a 3 line statement in the released notes that was interpreted as beginning of the end of rate hikes.

I'm not sure about that.

My coworkers are arguing that a bunch of people are buying put options, effectively shorting the stock market, in the days prior to these FOMC meetings. At 2pm, the meeting notes come out, and we see that the expected .75% rate happened.

Since that was "expected", all the put options are now sold. That causes the stock market to jump up (since the effective-short positions are liquidated).

Its just a hedge, just in case the numbers come in and the Fed chooses like 1% hike or higher instead of the expected .75%.

[bern4444]

I don’t think “A bunch of people” could affect the entire market like that even with derivatives unless it’s including substantial institutional investors.

Maybe a single stock but not the entire market.

I see this as, everyone bought on the news that the fed would begin tampering down rate hikes in the near future.

Powell spoke and said we remain committed to getting inflation down and will continue to do what is necessary.

All the buying switched to selling and the market plopped.

[dragontamer]

> I see this as, everyone bought on the news that the fed would begin tampering down rate hikes in the near future.

But this pattern has occurred over and over again in the last 4 rate hikes. You are suggesting that people haven't learned their lesson yet, which seems absurd to me. This is the 4th consecutive rate hike, with the numbers (0.75 increase) exactly the amount everyone expected.

It seems more likely that the people "buying at 2pm" today were covering hedged bets (such as selling off their put options, bought to protect against the volatility today).

The fundamental question is whether or not you want to believe that these buyers (and sellers) knew what they were doing. I think its more likely (than not) that they knew what they were doing, and favor the stories that have that mindset.

[bern4444]

> But this pattern has occurred over and over again in the last 4 rate hikes. You are suggesting that people haven't learned their lesson yet

Yes.

> which seems absurd to me

Yes. It seems absurd to me as well. :). Markets aren’t quite as rational as everyone likes to believe

I think they “knew what they were doing” when they heard something they thought meant this would soon be ending and then knew what they were doing when Powell spoke and wiped that idea out of existence.

We are witnessing the end of over a decade of cheap if not free money. This has all taken place in ~6 months. 14 years of expectations and beliefs will take some undoing before markets accept the new reality.