In the press conference that followed the regular March FOMC meeting last Wednesday, Federal Reserve Chair Jerome H. Powell had a clear and loud message for Wall Street: No interest rate cuts in the offing.
That should have disappointed traders and investors in U.S. debt and equities who beat up bonds and stocks ahead of the FOMC meeting expecting to hear that the Fed is ready to reverse course and prompt a broad sell-off.
But it didn’t, as traders and investors staged another fight against the Fed. After a brief sell-off in late afternoon trading, major equities rallied on Thursday, as the talk on financial media was about interest rate cuts rather than interest rate hikes.
“Markets seem set to fight the Fed all the way,” Oliver Rust, head of product at Truflation, told International Business Times. “Investors are already pricing in three rate cuts this year alone, and this has certainly not been signaled. So we will likely see a continued disconnect between markets and the U.S. Central Bank as the warring interests of financial and price stability continue to clash.”
Fighting the Fed is a bad idea on Wall Street. It can be harmful to traders and investors who do just that.
The nation’s central bank can determine liquidity and interest rates, which are critical factors in asset valuation.
When the Fed raises interest rates, asset valuations decline, as the future cash flows they generate for their holders are less va