There is a liquidity crisis, but quite frankly Federal Reserve does not have a lot of good choices here.
- The Federal Reserve has a meeting on Tuesday and Wednesday, and that is almost certainly going to be the main driver of what happens next. After all, traders are trying to ascertain whether “Uncle Jerome” will give them the liquidity that they desperately want.
- There is a liquidity crisis, but quite frankly Federal Reserve does not have a lot of good choices here.
- If they were to turn on the spigot again, meaning pump out a bunch of cheap money yet again, we then have the inflationary problems getting worse, because cheap money is one of the biggest causes of inflation.
Stock markets are crashing again
On the other hand, if they continue to tighten monetary policy, asset prices will have to come down. That’s part of what we’ve seen, but now Wall Street is already trying to start the next narrative for a bullish run. What the Federal Reserve does as far as an interest rate hike is important, but probably not nearly as important as what Jerome Powell says during the press conference. After all, it’s going to be about forward expectations and whether money is going to be tight or loose. I suspect that he is going to be much more aggressive than the market gives him credit for.
We Have a Lot of Noisy Action Waiting to Happen
The 200-Day EMA sits just below, near the 4000 level. That obviously will attract a lot of attention, but I think we have sliced through it a couple of times now, and therefore it makes quite a bit of sense that we will see it have less and less influence. Nonetheless, there could be a little bit of noise but ultimately, I think we’ve got a situation where we see at least a bit of hesitation. On the upside, we have the shooting star from the Friday session, and if we can break above there is likely that the market is looking to the 4200 level with any type of momentum being pushed into it.
All things being equal, I think we have a lot of noisy action just waiting to happen, and therefore you must look at this as a short-term back-and-forth range-bound market until we get that announcement and press conference, which comes out shortly afterward. In fact, I don’t know that the announcement itself will be as big of a deal as the tone of his question-and-answer session.
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