We finally got past the FOMC Policy Decision and saw some weakness in the market creeping in afterwards. The overall event was more hawkish than expected on two fronts. The Dot Plot, showing the peak rate, was revised to 5.1%, which is a bit higher than the market expectations at the time of the event but more or less in line with peak rate expectations in the past weeks/months.
The more hawkish stuff here is that the majority of members saw rates peak at or above the 5% level, which shows an unanimity among members, and the rate is expected to be cut to 4.1% in 2024, which is higher than previously indicated and shows a willing to stay “higher for longer”.
The second more hawkish part came from the Fed Chair Powell press conference where he pushed back against bets that the Fed would reverse course next year and that they will “stay the course until the job is done” to avoid the mistakes of the 1970s when the Fed prematurely eased monetary policy and had to fight with repeated inflationary waves.
The Fed also keeps on repeating that the labour market is extremely tight. They probably won’t have conviction in lowering interest rates until they see unemployment to pick up. Even though inflation data may continue on showing relief, the Fed clearly wants to see the labour market to show weakness as well.
To achieve this, they need a proper recession and that’s what the bond market may be seeing. For the stock market, on the other hand, it’s not good news as a possible overtightening from the Fed and a serious recession are two of the worst scenarios.
DOW JONES Technical Analysis
Recent two weeks of price action and catalysts on the Dow Jones on tradingview.com
On the technical side as you can see in the chart above, the price has been chopping around for the last 2 weeks as tier one economic data increased the fear of a possible surprise in the CPI report, which in the end missed expectations. The market erred anyway on the defensive side going into the FOMC meeting and got served a more hawkish than expected event. The price now is compressed between an upward trendline and a strong resistance.
Looking at the daily chart below we can see that the 35192-35412 blue zone is a pretty strong resistance. The price couldn’t break that area and got immediately rejected after the spike from the CPI report. We can also see that there’s a bearish divergence between the price and the RSI. This signals a weakening momentum right at the resistance, which points more to the downside than the upside. Will this FOMC event mark the top in the Dow Jones?
Daily chart of the Dow Jones on tradingview.com
We will see. As of now, the levels to watch are the blue zone resistance and the blue upward trendline. If the price breaks up, we may see the Dow Jones climb to the all-time-high at the 36832 level. If the price breaks down, we should see the price reaching the first target at 31761 and a further break below may lead to the low at 28660.
