OUTCOME OF FED MEETING WILL BE KNOWN WEDNESDAY

The outcome of the long awaited FOMC meeting will be known Wednesday afternoon.  As widely discussed, the central bank will increase the overnight rate for the first time in almost four years.  The question at hand will it be 0.25% or 0.50%?  Consensus is expecting the former.

The market is expecting six interest rate hikes in 2022.  In October the central bank was projecting none.

Every Fed meeting is significant; however, it appears this meeting might be more significant than ones’ in year’s past.  I must write this is not the first time I have opined this view, perhaps this time it might be indeed the most significant in many years.

Inflation is at a 40 year high, money supply growth is 40% higher than pre pandemic levels, excess reserves are still rising, money velocity is accelerating, and real interest rates are at record lows.

The economy is now dealing with back-to-back supply shocks. The first of which was COVID induced, the second is war induced.  It is difficult to navigate one but two in succession has not been experienced in several generations.

Perhaps the larger question at hand is the multipolar/interdependent world ending? Is this the beginning of the end of globalization?  Will companies or countries withdrawal to their borders fearing the negative economic impacts from a combination of possible sanctions (i.e. freezing of foreign currency reserves) to the flux of companies suspending or existing operations if viewed as a pariah?

The most basic instinct is survival.  The mantra there is no interest like self interest is a component of this most basis interest of survival.

Are events of the last several weeks the start of a trend?  Economic nationalism and patriotism are part of the human psychic, elements that have been in existence since the dawn of tribalism.

As noted several times, Russia has a dollar denominated interest payments due on March 16 and has stated because its foreign reserves are frozen, it lacks the dollars to make the payment.  Russia intends to use rubles instead thus triggering a technical default.  Is this of any significance?

What will happen this week?  According to Bloomberg, the Treasury market wrapped up on of its worst weeks on the past decade whipping out a year of interest earned.  An index of Treasuries has lost more this year than any full year on record in Bloomberg data beginning in 1973.

Equities ended lower for the week, the worst week since January 21 declining between 2% and 3.5% depending upon the index.  Oil also for the week also fell, declining almost 7%.

The economic calendar is comprised of several inflation indices including the PPI, retail sales, numerous housing statistics, a manufacturing index and the a for mentioned FOMC meeting.

Last night the foreign markets were up.  London was up 0.30%, Paris up 1.79% and Frankfurt up 2.76%.  China was down 2.60%, Japan up 0.58%  and Hang Seng down 4.97%.

Dow futures are up about 0.85% and NASDAQ up 0.25%. The 10-year is off 16/32 to yield 2.07%.  Oil is down about 5% to $104/barrel.  The Russian stock market is still closed with attention now beginning to focus on its debt as over half of its $635 billion in foreign reserves are frozen.

 

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