I start writing thinking there’s no chance Powell can raise over 50 basis points (that’s what’s currently priced in fully – 25 to 50). If you look at the below chart the ONLY time we have raised rates into a weak economy is the 70’s (The Volcker era) – when we actually went ahead and raised rates into a recession – FYI we are pretty much on a cliff edge right now and looking down at a recession, all we need to happen is this Q’s GDP figures to trend negative and boom… were ‘’in a recession’’ – Many indicators are already suggesting we’re in one. So yeah we raise rates here then we’re emulating the Volcker era
The Volcker era was around 2 years of pain for markets while he battled to reduce inflation. HOWEVER I don’t THINK Powell has the ammo to pull a Volcker
– Mainly for two reasons
Powell needs to crush demand to take on inflation and I don’t think we are there YET, but I actually think we are getting close. Consumer demand has fallen and continues to fall, I think its just corporate demand / high level demand that still needs crushing a bit here and I’m focused on OIL to gage this level of demand plus the supply chain issues in china subsiding as this should bring down a number of rising costs and ultimately the CPI + some other commodities and raw materials.
After going through this research I’ll be honest… I’m not 100% convinced on anything. I don’t think anyone is really because the situation is so complex and full of twists and turns. Currently the market is pricing in a 25/50 hike this month
If I had to GUESS here I’d say he goes with a 50/75 Hike THEN signals possibility of ANOTHER 50/75 in June. With the market only pricing a 25/50 this month I think this leaves the door wide open for him to surprise to the upside by doing a 75, crushing the demand / market a little further then NOT actually following through with an increase of 50/75 in June… More like an under expectations 25 to make markets rally again once the above demand destruction has taken place.
