Breaking News
Investing Pro 0
👀 Bezos, Buffett & Berkowitz: What's in Their Portfolios? Unlock Data

Fed Likely to Raise Rates Again This Week, Indicate More on the Way

By Michael KramerStock MarketsMar 20, 2023 09:13
ng.investing.com/analysis/fed-likely-to-raise-rates-again-this-week-indicate-more-on-the-way-159068
Fed Likely to Raise Rates Again This Week, Indicate More on the Way
By Michael Kramer   |  Mar 20, 2023 09:13
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
US500
+1.30%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
DJI
+1.00%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
GS
+2.51%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
HON
+0.77%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
UNH
+0.80%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
BK
+0.99%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

This will certainly be an interesting week, especially with the Federal Reserve meeting scheduled for Wednesday. I anticipate that Jay Powell will raise interest rates on Wednesday, indicating that more rate hikes are on the horizon.

The silence from the Fed over the past week has been quite noticeable, with no significant commentary following the release of the higher core CPI data, even from sources such as The Wall Street Journal. While the Fed is in a blackout period leading up to the meeting on Wednesday, there is usually some media speculation about its next move, but there has been next to nothing this week.

This lack of communication leads to questions about the Fed’s likely action. However, by analyzing the commentary from Fed officials over the past year, it seems reasonable to assume that the Fed will continue raising rates, as the banking issues are likely, not new. For months, the Fed must have known that banks were sitting on significant losses in their held-to-maturity assets; in retrospect, this should have been apparent.

Anyone who bought a 10-year note at 1.5% is now losing money if marked to market. Investors who should have known the potential risks were not, as evidenced by the 25% increase in the KBW Bank Index from the October lows to the February high.

BKX Index Daily Chart
BKX Index Daily Chart

Even by the end of the second quarter of 2022, banks such as Bank of New York Mellon (NYSE:BK) experienced losses on their held-to-maturity and available-for-sale assets. During that period, the Fed raised rates at 75 basis point increments. These losses grew larger after the fourth quarter, and the Fed continued raising rates in February.

Bank of NY Mellon Corp and its Subsidiaries - Balance Sheet
Bank of NY Mellon Corp and its Subsidiaries - Balance Sheet

Bank of NY Mellon Corp and its Subsidiaries - Balance Sheet
Bank of NY Mellon Corp and its Subsidiaries - Balance Sheet

The Fed is faced with the choice of either not raising rates or continuing to press ahead. If the Fed stays true to its statements over the past year, then these challenges were to be expected. After all, Jay Powell informed us at Jackson Hole that there would be some pain and that this was the cost of reducing inflation. If the Fed genuinely believes that price stability is necessary for financial stability, it must continue to raise rates. Otherwise, its past statements and guidance will lose credibility, and the markets may never trust this Fed again.

With the new Bank Term Lending Facility, it seems that any bank needing funds can access the facility, take a loan based on the par value of its bonds, and shore up its balance sheet. This should mean that even if the Fed continues to raise rates, all banks should be able to weather the storm.

There is also $2 trillion per day entering the Reverse Repo facility. If that money were redirected, bank reserves would increase significantly, providing even more liquidity for banks. However, the Reverse Repo facility is being utilized daily, resulting in reserves remaining at the lower end of the range.

Reserve Balance with Fed Reserve Banks
Reserve Balance with Fed Reserve Banks

S&P 500

Meanwhile, the S&P 500 finished lower on Friday, with the March options expiration now complete. This development should free the major indexes and enable them to trade more freely.

The S&P 500 appears to have formed a bear flag over the last few trading sessions, and if this is the case, we can expect the futures and cash index to test the 3,800 support level again this week. A rally to the upper end of the channel would allow the S&P 500 to approach 4,040. However, I do not think that is the likely path.

S&P 500 Futures 1-Hr Chart
S&P 500 Futures 1-Hr Chart

Dow Jones Industrial Average

The Dow Jones Industrial Average also appears rather weak and is likely to revisit its October lows, having completed a diamond reversal top a couple of weeks ago. Some support has been observed around the 32,000 area on the chart, but a decline below 31,400 could pave the way for a drop back to 30,000.

DJIA 1-Hr Chart
DJIA 1-Hr Chart

Goldman Sachs

It is still unclear to me why Goldman Sachs (NYSE:GS) rallied as much as it did in October, but that surge seems to have run its course. Now, the stock is giving back those gains, with the next major level of support at $286.

GS 1-Hr Chart
GS 1-Hr Chart

Honeywell

A similar situation can be observed in other parts of the DJIA, such as Honeywell (NASDAQ:HON). This stock experienced a significant rally off the October lows, but now those gains are being wiped out. Support levels for Honeywell are at $182 and then $174.

Honeywell Inc 1-Hr Chart
Honeywell Inc 1-Hr Chart

UnitedHealth

UnitedHealth (NYSE:UNH), another major Dow component, experienced a significant upward move and has been consolidating for months since. The stock has fallen below its long-term uptrend and is now trading at the lower end of the channel.

A break of the trading channel would be a negative signal and could set the stage for a decline to fill the gap at $404.

UNH 4-Hr Chart
UNH 4-Hr Chart

Original Post

Fed Likely to Raise Rates Again This Week, Indicate More on the Way
 

Related Articles

Fed Likely to Raise Rates Again This Week, Indicate More on the Way

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email