The rally off the June lows is premised on the following argument: Inflation is peaking; therefore the Fed will slow the pace of its rate hikes; which will ease the pressure on risk assets. But the market had some doubts about it last week in the wake of the Fed Minutes, comments by Fed Board Member James Bullard that he favors a 75-point hike in September and a front page article in Friday’s WSJ saying that the market is effectively betting that the Fed is bluffing.
To be specific the market is hoping for a 50-point hike and scared of a 75-point hike in September. The September Fed Decision is therefore shaping up to be a doozy. Next week all eyes will be on Chairman Powell’s speech in Jackson Hole, WY at 10am EST Friday for any clues he might give about September.