The most feared ride in any amusement park is the roller coaster and the funny part is it is the main attraction as well. This reference can be used for the financial markets in which the most feared and attractive part is the Federal Reserve Policy.
Since 2008, there have been ups and downs in the financial markets but the Fed policy has been able to navigate the participants and the uncertainty fairly well. Though there were some hiccups then it was able to resolve with limited damage.
But since 2022, it feels like the ride has come to that part that everyone is scared of that has the most curves with a lot of dangerous turns. And in the past two months, the danger portion has reason to a large extent.
In the past 48 bourses, Fed Chair Powell's testimony has increased the probability of a 0.5% rate hike by 76% from 9% one month ago. Along with this, the peak rate has gone from 5.25% to 5.75%.
It might not reflect the chaos related to it but it does bring out the uncertainty in the FOMC itself and the financial markets.
The problem with this becomes that everyone picks one out of two extremes. One is sitting on the sidelines like US banks are doing with $2.19 trillion of reserves in the reverse repo. Another is going all in like US retail investors and trades that have bought amounting to $1.5Bn per day since the Feb FOMC meeting. These two extremes will lead to higher volatility with a large risk to financial stability.