Will the Federal Reserve rate hike tomorrow crash the market by 10%?

The rate hike is the least of your worries. After tomorrow the target rate will be around 1% which, even if we get a 75 basis point rise in the meeting after tomorrow, still only gets you to 1.75% which, as a chance would have it, is where the rate was in Feb 2020 just before Covid.

No, the concern isn’t the rate decision. The biggest news of the day will occur at the 2:30 press conference, at which point Powell will identify the Fed’ path to reduce its over $9 trillion balance sheet. That my friend has the potential to cause a panic if it is clumsily communicated, going to occur at a faster pace than expected, or assets will be sold versus being rolled off.

Remember, until very recently, the Fed was the market in bonds. Price maker, price taker, and liquidity provider all in one. As of tomorrow, we will know… sometimes the diagnosis is exactly what you thought it was… not good

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