Scott Minerd, Global CIO of Guggenheim Partners, tweeted his observations from the Federal Open Market Committee (FOMC) meeting yesterday. As per Minerd, there are three dovish signals to be drawn, including a slowdown in economic activity; lag effects of prior big hikes are yet to be felt; and lastly, the fed funds rate is now neutral.
In totality, Minerd believes that the Fed’s hawkish policy has now changed to dovish and any future calls on interest rate hikes and monetary policy will be dependent on major economic data points like inflationary figures and GDP numbers. Furthermore, Fed Chairman Jerome Powell’s statement eased investor pressure when he stated that the U.S. economy was only softening and not currently in a recession.
Notably, the Federal Reserve increased the interest rate by 75 basis points yesterday, bringing the federal funds rate target range between 2.25% and 2.50%. This is close to the Fed’s 2.5% long-term neutral rate, which neither stimulates nor curtails economic activity. This may be the reason that makes Minerd believe that the Fed will now assume a dovish stance.
Stock markets reacted positively to the news, also in part to the sort of reassuring outlook from the results of technology bigwigs Microsoft (MSFT) and Alphabet (GOOGL). The Nasdaq Composite (NDX) marked its highest daily jump of 4.06% since 2020. And the S&P 500 (SPX) gained 2.62% and closed higher than June 8 levels. Meanwhile, the Dow Jones Industrial Average (DJIA) rose 1.37%.
Nonetheless, Minerd’s tweet was absorbed with a pinch of salt. While a few agreed with his theory, many do not believe that the Fed signaled a neutral rate, and a few even doubt if Fed did send out any dovish signal.