📉 The Fed Keeps Real Interest Rates Steady, But the Market Is Still Burning Red

Last night, many of my brothers saw that the Fed kept interest rates unchanged, so they thought the market would be fine.
But the issue is elsewhere.
The Fed keeps real interest rates steady, yet the Dot Plot is rather “hawkish”:
• The GDP growth forecast was lowered.
• The inflation forecast was raised again.
• Expectations for the end-of-year interest rate are higher than before.
Simply put, the Fed still isn’t truly comfortable with inflation.
That’s also why, after the announcement:
📉 Stocks fell.
📉 Gold fell.
📉 Crypto also fell along with them.
The market reacted strongly because people expected the Fed to cut rates faster, but what the Fed just released suggests that won’t be easy.
However, looking a bit farther ahead, the story doesn’t change much.
In the end, interest rates still have to move downward, but chances are they’ll stay above 3% for the next few years instead of dropping sharply like many people are expecting.
👀 One fairly interesting point is the story about Kevin Warsh.
If you’ve been following, you’ll see this guy has a very different style.
• Doesn’t bother submitting a Dot Plot.
• The FOMC text is more than 300 words, but he reduced it to more than 100 words.
• He opens with a simple “Good Day”-style greeting.
• No matter what reporters ask, he answers extremely briefly.
Overall, it’s very hard to tell what he’s thinking just by looking.
The message he repeats the most is the 2% inflation target.
In Kevin Warsh’s view, the Fed should talk less about the future, guide market expectations less, and focus more on actual data.
In other words:
• Deal with the data as it comes.
• Don’t forecast too far ahead.
• Don’t promise too much.
In the long run, this could be a good direction because it helps monetary policy stay more grounded in reality and concentrates on bringing inflation back to its target.
🛢️ Besides the Fed, there’s another noteworthy piece of news.
• The US and Iran are believed to have reached an agreement with many terms for cooperation.
• This information helps cool off oil prices because the market expects energy supply to stabilize more.
• However, the most controversial point is a clause where the US is expected to provide up to 300 billion USD to Iran.
• At present, the market is still waiting for more details to assess the real impact of this agreement.
👉 In summary:
• Short term: The Fed is still being fairly tough on inflation.
• The market is disappointed, and that leads to a negative reaction.
• Long term: The trend of rate cuts hasn’t changed; only the pace may be slower than expected.
• Oil prices have support from positive developments in US-Iran relations.
At this point, don’t focus too much on each red or green candle over the next few hours.
What matters is to keep an eye on the direction of inflation and interest rates in the coming months, because that will determine the market’s larger trend.