50BP Hike & Dovish QT

So the FED goes 50bp as expected. For us this was not a surprise nor was the balance sheet reduction schedule. As our piece noted yesterday, we know the FED cannot raise rates to high given the size of the balance sheet, nor can they reduce it by very much. As today’s announcement confirmed, the balance sheet reduction is a fraction of the total pig that exists. Here is the statement and as we highlighted by the end of this year the FED will have reduced the balance sheet by roughly 5.8% (nothing):

If you didn’t read our post yesterday, here is the graphic we included:

Today’s announcement confirms where we believe the balance sheet will be in 2023, $8 T and where we believe the hard deck is for FED FUNDS, 1.75%. Here is the FEDs dot plots with our own overlay of reality of course in purple:

As far as the markets reaction, well exactly as we anticipated, major reversal moves in yield curves, Dollar, Metals and Equities of course. Not to be outdone, the US Govt bond curves steepened dramatically:

As for the rest of the markets:

Nasdaq the big winner +3.4% on the day…you guys notice the YTD on Energies??? Massive moves there, good thing its not winter any more Nat Gas might be up in the teens!!

Alright, we liked the set up today and we believe we will not see a reversal of today’s moves tomorrow, maybe a little profit taking, but in our book the FED said exactly what we expected, 50bp and no real rollover for the balance sheet. All in all this is Equity and Bond bullish, Dollar bearish from our point of view and the sentiment is still well offsides here, a grind up for a few months seems highly probable.

Till next time…

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