Surprise Rate Hike Watch - from Tranitory to Inflation Much too High


We trade algorithmic strategies that take both long and short trades. Managing event risk is key and being aware of market moving events and news is important in implementing our trading systems.


I'm not predicting a surprise rate hike but I don't like to be blind sided so its important to consider everything that could happen when you trade the markets.


The market has easily digested the 0.25% rate hike to the point of creating euphoria and giddiness among stock bulls. In the mean time inflation continues to rise.


Inflation has gone from "transitory" to "much to high" very quickly.


A balance sheet reduction could also be announced intra-meeting.


This Fed has communicated its moves in advance so an intra-meeting rate hike or decrease in balance sheet would be a major surprise and an emergency response to inflation.


No one is predicting this and I am not predicting this. Its something to watch for and consider as equities seem extremely euphoric and giddy with meme stocks such as GME up 100% in 5 trading days and the Nasdaq futures up 13%+ in 7 trading days.


If inflation were measured the way it was measured in the early 80's it would be at 14%. In June 1981, Paul Volker raised rates to 20% to get ahead of inflation.


Its interesting that "Inflation is much too high" is used along with "if necessary" and this Fed seems more willing to let inflation run out of control rather than taking the necessary steps to genuinely fight inflation. It appears that supporting asset prices in bubble territory is more important than the affordability of food and energy for the poor and middle class.


We also realize that the interest payments on US debt would soar if rates rose. The Fed appears stuck at the moment with either outcome (inflation or higher rates) would be a major challenge for the economy.

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