A Down Fed Day After SPX Closed At A 10-Day High

By Rob Hanna

Reaction to the Fed ended up being negative on Wednesday. The study below is an old one I had not examined in a few years. It looked at other times SPX closed down on a Fed after closing at a 10-day high the day before.


This is a setup that has changed over the years. Prior to 2009, this setup often saw the market move higher the next day. But the recent tendency has been decidedly downward. Below is a look at the profit curve.


With a low sample size, and this only being a recent tendency, I do not consider it a strong edge. But this may be something traders want to consider, especially if the tendency persists over the next several instances.

A large number of more substantial edges related to Fed Day activity can be found in the Quantifiable Edges Guide to Fed Days, which is available now if you make any size donation to the Multiple Sclerosis Society. More details on that promotion are available here.

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Uncertainty, Or You Had One Job To Do (And It Wasn’t Dots)

By Jeffrey Snider

As anticipated, the FOMC voted on both proposals in front of it. There should only be the one, but even routine monetary policy no longer is. Alan Greenspan’s Fed charged ahead with seventeen consecutive moves (the last few completed under Ben Bernanke) with little discussion about uncertainty in the economy (though there was, conundrums and all) let alone in the very place the central bank is supposed to operate with impunity.

The result of today’s action is the first of what is almost certainly going to be asymmetry moving forward. Dating back all the way to December 2008 when policymakers mercifully scrapped the singular federal funds target, the FOMC object had been to maintain a 25bps band or corridor in which they would accept actual trading. As of now, that band has been reduced to 20bps; RRP was increased +25bps; IOER only +20bps.

It immediately brings to mind not just IOER’s failure, as noted before, but also the ECB’s. The European central bank had tried narrowing its corridor starting in May 2013, though with everything reversed. It is a topic that deserves greater devotion at a future date (was it Bernanke’s uttering the word “taper” that ignited the big storm that spring and summer or was it the ECB’s narrowed corridor announced the same day?), so for now I’ll just summarize their experience as the same as it was for the Fed in 2007 forward – losing control.

Continue reading Uncertainty, Or You Had One Job To Do (And It Wasn’t Dots)

What Wall Street Expects From the Fed

By Heisenberg

Well, it’s Fed day and obviously everyone will be kind of frozen in time in the lead up to the decision and the post-meeting presser where Jerome Powell will probably prove (again) that he prefers to answer questions in a more direct, less academic fashion than Janet Yellen.

I continue to maintain that’s not a positive development, because it leaves less room for obfuscation and paradoxically, academic obfuscation (i.e., model-based bullshitting) is a highly effective way of letting markets know that the committee is willing and able to conjure up excuses to remain dovish even when the data suggests a different path in the event risk assets are showing signs of cracking. And I know what you’re thinking: “The Fed shouldn’t be concerned about propping up risk assets at every press conference meeting!” Yeah, ok man. Just remember you said that when, sometime down the road, Powell accidentally triggers an afternoon rout by eschewing long-winded rambling for a straightforward answer.

Powell of course hasn’t adopted anything that approximates the approach Kevin Warsh might have preferred, but obviously there’s a perception that he (Powell) is more data-dependent than Yellen and that it will take more in the way of turmoil in emerging markets and much more in the way of exogenous shocks and event risk from things that aren’t directly related to Fed policy (e.g., Italy) to deter him.

On Tuesday, WSJ moved markets with a report that once again suggested Jerome Powell may be moving towards holding a press conference after every meeting, which would effectively mean that every meeting is live. That got a reaction across fed funds futures and pushed the dollar higher. A move to take questions after each meeting could potentially set the stage for more volatility – or at least that’s the way I would see that panning out, even though I’m sure that wouldn’t be the intent and I’m sure a lot of folks wouldn’t agree with me.

Continue reading What Wall Street Expects From the Fed

Citi Economic Surprise Index Fell Since December Rate Hike

By Anthony B. Sanders

Fed Holds Target Rate The Same

Well, The Fed gave their expected news: no rate hike at the May 2nd meeting and they proclaimed that inflation is just around the corner.


Bloomberg: The FOMC’s two-day meeting followed the release of data Monday that showed inflation measured by the central bank’s preferred gauge had hit its 2 percent target after being below that goal for almost every month since April 2012.

You mean that the core PCE deflator YoY wasn’t 2% in January through March 2017??

Continue reading Citi Economic Surprise Index Fell Since December Rate Hike

Fed Comes A Little Bit Closer To Taylor Rule…

By Anthony B. Sanders

Raises Target Rate To 1.75% While TR Rudebusch Calls For 6.62% — Only 447 Basis Points To Go!

Yes, Jay (Powell) and the Americans (FOMC) came a little bit closer to The Taylor Rule (Rudebusch Model) with the FOMC voting to increase their target rate to 1.75%. The lower bound is now 1.50%.


The Taylor Rule (Rudebusch Model) calls for a Fed Funds Target rate of 6.62%. Only 447 basis points left to go, Jay!

Continue reading Fed Comes A Little Bit Closer To Taylor Rule…