No New Trade This Week — Here’s What’s Going On
There has been a change of plans, everyone.
We unfortunately do not have a trade this week. If you’re one of my long-haulers, then you already know some of our greatest challenges are weeks with earnings because I don’t recommend trades that report while our position is open. This is still true, but something else is also on the table this week…
The Federal Reserve is expected to continue its attempt at what economists call a “soft landing” by using higher interest rates to slow down demand and inflation, but not by so much that it crashes the U.S. into a recession.
In other words, it needs to curb economic growth without killing it off completely.
Now, the Fed has realistically only achieved one true soft landing out of the last nine tries since 1961, when chair Alan Greenspan doubled short-term interest from 3% to 6% in 1994-95. Then, the Fed was ultimately able to slow down the economy just enough to cool spending and ease inflationary pressures.
So the question on everyone’s mind this time is will it succeed?
The Fed not only approved its first interest rate hike last March — by 25 basis points — in more than three years, but policymakers projected that six more similarly sized rate increases would occur this year and an additional four the next because that’s just “how hot inflation is right now.”
Fed Chair Jerome Powell told lawmakers the day before his Senate testimony last March that he believes “it’s more likely than not that we can achieve what we call a soft landing.” If the Fed succeeds, he said that the economy should continue to grow and unemployment — it’s now 3.6% — will remain low or fall even further.
But it all just depends on policymakers getting things right, and not everyone seems to think they will.
The skeptics argue that the Fed waited way too long to take the bull by the horns by using the word “transitory” to describe all of the sudden price increases on things we’ve purchased in the past year or so, insinuating that it wouldn’t leave a lasting mark.
The Fed’s dovish tone, along with other things like strong consumer spending fueled by stimulus checks and the number of supply chain shortages, helped increase inflation to 7.9% — the highest rate since 1982.
So it has led some economists to think a soft landing could be a tough task to pull off this time around.
But there is an additional point most people haven’t thought about yet…
Nobody really knows where this hypothetical level is even under normal circumstances, which in case you haven’t already noticed, we’re not in. So while the Fed’s goal of raising rates to neutral doesn’t sound too problematic off the bat, the degree to which it needs to get there could also end up being more than officials expect.
Powell recently hinted that a half-point rate increase “will be on the table” at the Fed’s two-day meeting this week. Of course, I’ll be closely watching and updating you on policymakers’ next move when it comes to the battle with inflation.
But between the Fed’s announcement this Wednesday and the fact that we’re smack dab in the middle of earnings season, there aren’t any ITV trading signals that meet both my safety criteria and minimum annualized return at the current moment.
As per usual, I’ll be searching, but I won’t compromise on safety.
However,trading options could be a way to increase your income by hundreds or even thousands of dollars every month. But you need to know the ropes before making trades. That’s where my premium Income Trader service comes in…
Each week since February 2013, I have provided my subscribers with low-risk put selling opportunities. And so far, more than 90% of my trades have been winners.
I recently sat down with my publisher for a tell-all interview to explain how it all works.