Last week was another eventful week for the markets. There was a lot of anticipation regarding the meeting of the Federal Reserve, especially after Chairman Powell testified before Congress just a few weeks ago. In this testimony, he continued to pledge to keep up the pressure on inflation. On the other hand, the banking sector continued to take hits with multiple banks either closed or having to be bailed out. The increase of .25% in short-term rates was not a surprise considering these more recent events.
As we pointed out last week, the language concerning future increases would be what grabs the headlines. The Fed’s statement that they will stay the course against inflation but remain cognizant of the pressures within the banking sector, was interpreted as meaning that we are close to the end of this series of rate increases. After rising earlier this month rates had eased in reaction to the banking issues and the statement continued the trend — at least initially. Could rates move up from here? Of course, but it would most likely take additional strong economic news and/or another uptick in inflation for that to happen.
This is why we can never predict the future — who foresaw the banking sector being in the headlines at this juncture? Could interest rates move down from here? We have already seen rates dip at the beginning of the year, and we are currently testing those lows. While we are emphasizing the current state of uncertainty, keep in mind that there always could be another surprise which can pop up. Surprises such as another surge in the pandemic or the war in Ukraine could mean all bets are off. Obviously, we are hoping any surprise is a good one—such as perhaps the end of the war. We like that scenario best of all.