I think we all know by now that it’s all about The Fed. Ever since Powell pivoted hawkish on April 21 it’s been straight down for risk assets. Which brings me to the release of today’s Fed Minutes at 2pm EST. While the minutes are supposed to be a transcript of what was actually said at the Fed Meeting three weeks ago, in reality they are shaped by The Fed to influence market perception in real time. So: What message does the Fed want to send markets today?
I think today’s Fed Minutes are quite important because they will give us an indication of how the Fed is balancing its fight against inflation as risk assets implode. Up until now the Fed has been adamant that inflation is its only concern. But risk assets have essentially gone straight down over the last three weeks. Financial markets are bordering on panic. Given the importance it places on the wealth effect, the Fed is definitely aware of this.
So the question arises: Does Powell blink? One way Powell might try to ease the pressure on financial markets is by saying something to the extent that after raising another 50 basis points in June The Fed will reevaluate. If the minutes say something like this, expect financial markets to have a powerful relief rally. If The Fed continues to lean hawkish, the market could make new lows – though that could also provide a tradeable bottom. Either way, pay attention to today’s Fed Minutes.