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Fed Shifts from Every time to Sometime

Yesterday the policy decision was not related to whether the rate rises today or not but it was more to do with whether the rate will rise in future or not. Chair Powell made it clear that all members see a possibility of further rate hikes in the current year. This caught many investors by surprise but some CEOs had already mentioned what FOMC confirmed yesterday.

It caused a volatile reaction in every market but given that quarter ending expiry and new quarter build-up in equities, the actual reaction might be delayed till the first week of July. But Rate swap markets had a clear response as they removed a probable rate cut this year. It also increased the probability of a rate hike in July from 60% to 72% overnight.

This creates uncertainty in financial markets and the real world as the financial conditions get tighter and refinancing of many loans comes due in the second half of the year. Within them, the largest portion is of commercial real estate even found a mention in Chair Powell's speech. He said that there might be some losses in commercial real estate.

All this might lead to the next two quarters forming a peak for many assets and data as the impact of the poly crisis emerges.


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