-->

♟ What the Fed Actually Controls (You’ll Be Shocked)

Post a Comment
Trade of the Day Logo

View in browser

FOMC

"Understanding how interest rates and the bond markets work is critical to investing the in the stock market."

Karim Rahemtulla, Head Fundamental Tactician, Monument Traders Alliance

Editor's Note: Yesterday was electric during our Fed Shockwave Summit.

Thousands were in attendance, and they all learned our unique way to profit off down markets.

Imagine making gains as high as 157% overnight when the market drops 1%.

That's what the "Dark Ticker" strategy does.

Click here to discover how it works today.

- Ryan Fitzwater, Publisher



Karim Rahemtulla

Dear Reader,

After the FOMC's recent 25 basis point cut in interest rates, many people thought all interest rates would fall.

Imagine their surprise when the long-term rates actually moved higher.

What gives?

Well, the truth is… the Fed only directly controls the short end of the curve (overnight rates, fed funds, etc.). While long-term interest rates (like the 10-year or 30-year Treasury) are set by the market based on future expectations.

Here's why long-term rates don't always fall when the Fed cuts:

Inflation Expectations

If markets think Fed cuts will stimulate growth or stoke inflation, investors may demand higher yields on long-term bonds to compensate for the erosion of purchasing power. So, if the Fed cuts into an already hot economy, long rates can even rise.

Term Premium

Long rates embed a risk premium for holding long bonds (uncertainty about inflation, fiscal deficits, supply of Treasuries). If deficits are large or Treasury supply is heavy, long rates may stay elevated regardless of Fed cuts.

Growth Outlook

If Fed cuts are seen as too late or a sign of economic trouble, long yields may drop (flight to safety). But if cuts are interpreted as insurance cuts (to keep the economy humming), long rates may not fall—or may rise—because growth is expected to hold up.

SPONSORED

Something huge happened on June 30

Google just announced a partnership that could trigger an energy market shock, supercharge the AI revolution, and save homeowners tens of thousands of dollars.

According to one former Google insider, the technology at the center of this deal “could be even more important than the industrial revolution.”

Click here for the full story.

Global Demand for Treasuries

Foreign central banks, pensions, and investors buy long bonds. If demand weakens (say, due to better yields elsewhere or foreign exchange concerns), long rates resist moving down.

Market's View of Fed Credibility

There's also been a lot of action in the Fed "bench" this year from allegations of bad faith to conflicts of interest between the White House and the Fed.

And, If investors think the Fed is falling behind the curve on inflation, they may keep pushing long rates higher, even as the Fed trims short rates.

Here's the yield curve sketch below: notice how the short end drops after the Fed cut, but the long end barely moves.

Chart: Why Long Rates Don't Always Fall When the Fed Cuts
 

That's because long-term yields depend more on inflation, growth expectations, and risk premiums than on the Fed's immediate action.

Understanding how interest rates and the bond markets work is critical to investing the in the stock market. It's part of our daily analysis in The War Room.

Logo

YOUR ACTION PLAN

Action Plan: While many traders might panic when the market surprises them, we actually have a way to create overnight gains as high as 157% when the market drops.

Yesterday my colleague Bryan Bottarelli revealed this powerful strategy during the Fed Shockwave Summit.

It has an 85% win rate, with a 40% average return.

Click here to discover how the "Dark Ticker" trade works today.


INSIGHTS YOU MAY HAVE MISSED

Article

Why Selling Your Biggest Winner Makes Sense

Article

This Tech Group Is More Than Just a Cool Name

Article

Why IJR Beats the Russell 2000 (Rate Cut Play)

Article

The Fed Cut Rally Fooled Everyone... But the REAL Shockwave Is About to Hit

SPONSORED

See How to Get a Bonus Year of The Oxford Club's
#1 Research Service

We just finished crunching the numbers. And wow...

THIS was our #1 VIP research service... delivering SIXTEEN triple-digit winners in 2024.

It CRUSHED the S&P 500 by 4-to-1!

Its Total Performance CRUSHED the Market - 400% The S&P's Return
 

Click here to see how to get a bonus year of this
market-trouncing research service.

Related Posts

There is no other posts in this category.

Post a Comment

Subscribe Our Newsletter