Last night the Federal Reserve not only increased interest rate by 0.75% but also increased the level of uncertainty. This got reflected in the fall of 96 points on the S&P 500 (USA Equity Index) with the majority of the fall coming as the Chairman spoke. This does not lead to blaming him or the speech but it is to blame the number of optimistic sentiments that were built into the positive positions before the event.
During his speech, there was a slight hope for the side that estimates that it is the last 0.75% hike. That is why the odds of a 0.5% hike in the December meeting rose above 56% from 45% before the speech. But the critical part of the speech was later when he made clear that pausing or even thinking of it was far from happening anytime soon.
Though these lines in their way provided something to both sides whether short or long that is currently being driven by the highest speculation levels in many quarters.
The most important phrase was “Nobody knows whether or not a recession will occur or how severe it will be ”. This phrase in some ways resembles when Federal Reserve started to push away from “ Inflation is transitory”.
In an environment where defaults are rising in loans and rents along with the likeliness of employees peaking this season the majority of jobs are being added in the service industry. These words are not very investor friendly as Trillion of dollars in the real and financial world are highly sensitive to them.
Though the direction of the policy or the speech is highly uncertain, there is certainty in saying that the next six months are going to be extremely volatile.