All eyes on FOMC 👀
It's an important one, pay attention.
Quick summary:
The Q1 competition is open, two more weeks left - click here.
Last week’s inflation reports both came in hotter than expected. The reaction to the first was a rally, to the second a sell-off a day later. Markets are sideways waiting for FOMC this week. In that type of environment, we had a losing week, missing on our bullish prediction.
The FOMC interest rate decision on Wednesday is “the” event of the week (and the next few months probably). Rates will remain unchanged, that’s pretty much certain, but the focus will be on interest rate expectations for the rest of 2024 and 2025. That’s right, we get a new dot-plot and Summary of Economic Projections (SEP).
In the paid section, we dive into the three potential scenarios for tomorrow’s FOMC. It’s an important one, as it will determine whether we get that short-term correction, or we keep rallying.
The competition
Two more weeks are left in our Q1 competition. The competition is tough, as the top spots keep getting shifted. But it’s fantastic to see your precision staying on course. The top 10 are hitting every week really really close.
Keep it up everybody! Two more weeks and then we announce the top 20 winners and pay out our prizes.
NOTE: For all those new to the whole thing, read more about it here or watch a video of Scott and myself guiding you through the survey, showing you all its features, and briefly explaining how the competition works.
Last week’s performance
Last week, attention centered on the CPI and PPI reports. Both came in hotter than expected (PPI much hotter than expected), leading to a quick adjustment of rate cut probabilities (down from 6 expected cuts to only 3 for the year, starting in June or even July). The market reaction to CPI was, surprisingly, a rally on Tuesday, while the reaction to PPI on Thursday was lackluster at best, where an initial sell-off was countered by an end of day mini-rally. On Friday,, with the quarterly options expiry, we saw a more sustained move down.
The BASON prediction was bullish, which unfortunately failed to deliver. There was no continuation of the bounce-back on Friday and this killed our positions and cemented the loss. After a 10% return over the past three weeks, I guess it was time for a pullback. Still up over 9% for the year, coming strong into FOMC week.
FOMC ahead
I want to walk you through the three potential scenarios for tomorrow’s FOMC.
The most important thing that will come out tomorrow is a revised Summary of Economic Projections (SEP). Last time this came out, back in December, it was incredibly dovish, projecting 3 rate cuts for 2024. Markets shot up, immediately anticipating 6 rate cuts and cementing the soft landing narrative. In the meantime, we are back to expecting 3 cuts, and all eyes are again on the Fed to see if this is correct or should we expect even less cuts due to stickier inflation.
Let’s examine the scenarios and possibilities.