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Sunday, June 10, 2018

Fed Meeting Wednesday: Something Exciting

The Fed meets Tuesday and Wednesday and I'm getting bullish. The Fed is almost at their target for Fed Funds for the year and there are multiple hints that they could hold off further tightening until maybe year end, as we'll explain.

Why Are We Bullish About Wednesday

We've been bullish, as you know. The market's shown time and time again it wants to go higher.

Wednesday you have a catalyst to let the cap off the market.

The old investing adage "don't fight the Fed" means stay bullish when they are easing and watch out when they are tightening.  This meeting on Wednesday which includes a press conference could see them change from hawks to doves.

Tightening May Be Over For Months After Wednesday

I'll show you.

The Fed drips out hints all the time on their plans.

First, their 2018 Fed Funds target is 2.1% and they currently are at 1.75%. That implies they only plan one more rate hike this year. That rate hike comes Wednesday. If it holds that means we're done for the year.

Next.

The Wall Street Journal has been known to be source for Fed leaks for the Fed to get their message out.

The Wall Street Journal is saying the Fed is raising this meeting but is unsure about its future timeline. That's less hawkish. The Fed is unsure if they should continue raising.

CNBC is also reporting that the Fed could end their balance sheet reduction sooner. Instead of taking their bond holdings down to $2.5T they could stop at $3.5T. That could add support to the bond market and so the stock market.

The market is catching on.

Fed Funds Futures Hinting Dovish

The Fed Funds Futures gauge what the Fed says but is also a Fed tool. The Fed looks at the Fed Funds futures to see if the market's comfortably prepared for policy changes.

Let's look at the Fed Funds futures to see what the Fed sees.

Source
If anything, the Fed Funds futures are getting jumpy.  Up in the chart implies fewer rate hikes by year end. The chart to the left is telling you that in the last couple of weeks the market is expecting fewer rate hikes.

That fits with the WSJ, CNBC, and the Fed at their 2018 target after this next rate hike.

What It Means For The Stock Market

Fewer rate hikes and an end to the worrisome balance sheet run-off sooner are both likely market positives.

The stock market's already showing you 'it wants to go up.' A positive news catalyst on Fed day can help it go higher.


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