🐺 Inside the FOMC Meeting: Insights into the Latest Decisions

Hello, pack! 🐺

This is Howling Markets, the newsletter that shines moonlight even during the darkest financial periods!

Today we will be covering:

•  What is the Federal Funds Rate? 📈

• The outcome of the latest FOMC meeting 🏛️

•  Solana’s (SOL) price predictions 🪙

• Equity and Debt markets updates 💰

• And much more!

EDUCATION

What is Federal Funds Rate and why is it so Important?

The Federal Funds rate is the interest rate target set by the Federal Open Market Committee (FOMC), the operative branch of the Federal Reserve System, at which banks must borrow and lend excess reserves to each other.

In simpler words, the Central Banks which can be considered the “bank of the banks” can decide the interest rate range at which commercial banks can borrow and lend reserves exceeding a legal minimum requirement, in the interbank market.

Even though these rates only apply to loans between banks, it is easy to imagine that if a bank takes out a loan to lend money to an investor, the “consumer” rate will be higher than the bank’s by a given margin to ensure profitability and to hedge against the default risk.

Because of this, changes in the Federal Funds rate often have a powerful effect on the entire economy and are one of the primary monetary policy instruments used by central banks all around the world.

For example, when the FOMC raises their rate, they are aiming to reduce the amount of credit (and credit risk) in the economy, trying to slow down investments and reduce the overall economic activity.

Interest rate hikes have been the primary monetary policy adopted by the Federal Reserve in the post-pandemic period to try and curb inflation restricting the economic activity in the US.

NEWS

Latest FOMC Metting News

During October’s Federal Open Market Committee (FOMC) the Federal Reserve decided not to raise interest rates for a second time in a row, which are currently sitting between 5.25% and 5.50%.

Such a decision was widely expected both by the equity and debt markets, which did not show a strong reaction to the press conference, and which continued along their trend without major shocks.

However, there are two very notable points that must be discussed thinking back at what was said in the meeting.

First of all, even though the fed pause is definitely a good omen for the equity market, the interest rates are extremely elevated and currently sitting at the 22-year high, potentially causing some serious long-term damage.

Secondly, the Fed did not miss the opportunity to remind us that it is too soon to determine that August’s rate hike was the last one, and if needed, they would keep increasing rates through the beginning of 2024.

NEWS

Solana (SOL) outperforms Bitcoin (BTC) and Ethereum (ETH)

October has been an exciting month for Solana (SOL) traders and investors as this cryptocurrency has outperformed most of its rivals during this month.

After the disastrous fall from its all-time high at around $260 in late 2021, Solana has retested its initial issuing price and now it is looking like it is ready to move up!

As a matter of fact, during October this cryptocurrency has gained 79.70% with respect to its value at the beginning of the month.

As a comparison, during the same time interval BTC has “only” gained 28.47% and ETH only 4.78%, undoubtedly still respectable gains, but significantly lower than Solana’s.

The price surge and general optimism around this coin has been fueled by many reports, including VanEck’s released less than a week ago, showing the actual potential of this cryptocurrency.

In the report it was stated that Solana could become the first blockchain to support an application with more than 100 million users, beating what many experts believe to be its main competitor, Ethereum.

Additionally, the same report showed a base, bearish and bullish 2030 price prediction for SOL, presenting the possibility that the token will achieve a more than 10,000% gain before then.

Today’s Howling Question

And now, let’s test your financial knowledge about the US Stock Market!

Which sector of the S&P500 has realized the highest returns since the beginning of the year?

a) Energy ⚡

b)  Utilities 🚰

c)  Communication Services 📞

d)  Consumer Cyclical 💳

We’ll show you the right answer and explanation after the last interesting piece of news!

NEWS

Equity and Debt Markets Update

Following the 10-month bull run from the low reached in October 2022 to the Year-To-Date (YTD) high of August 2023, the US Stock Market has continued to spiral down along a seemingly linear channel down pattern.

Between August and the 27^th of October, the market had lost 10.42% retracing more than a third of the spectacular bull run started last October.

However, following the great news transpired from the FOMC meeting, the markets have had a great week so far, looking to close up 5% since last Friday’s closing price.

This rapid upward price surge can also be attributed to the fall of interest rates, and more specifically long term government bonds rates.

The 10 year US government bonds (US10Y) rates are often used as an indicator of growth and inflation expectations, so in high-inflation environments these rates tend to be inversely correlated to the stock markets, meaning that as rates go up, the stocks’ prices go down.

Similarly, also the 2 year US government bonds (US02Y) rates are going down, which however tend to be less correlated to the market and more closely bound to the Fed’s interest rates expectations. A falling US02Y rate indicates a general expectation of a decreasing Federal Funds rate in the future.

Answer

The answer to the howling question is c) Consumer Services.

So far, during 2023 consumer services have been the best performing sector of the S&P500 realizing a +34.95% gain YTD, closely trailed by the technology sector at +32.55%.

Consumer cyclical is the second highest performer among the four alternative answers to the question, clocking in at +18.62%, followed by Energy at 4.16%.

The Utilities sector, on the other hand, has been the worst performing sector so far, losing -12.49% YTD.

If you want to check out the standings of all 11 sectors or other time frames, click here.

HOWL-WORTHY MEMES

🐺 See you next time!

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