Powell’s hike

Good morning.?Phil Rosen here, writing to you just blocks away from the Federal Reserve building in downtown Manhattan.?

There are 10 global central banks set to make interest rate decisions in the coming days, but today, all eyes are on the Fed.?

New York Stock Exchange senior market strategist Michael Reinking put it well: "Central Bank Week is not quite as popular as Shark Week but it's starting to have a somewhat similar feel, with traders beginning to smell some blood in the water."

Today, I'm breaking down what to know about the Fed's third jumbo rate hike, and how markets could look in its aftermath.

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1. A third, outsized rate hike is an unprecedented move by the Federal Reserve.?But extraordinary inflation calls for extraordinary measures.

August's hot Consumer Price Index report dashed hopes that the Fed could soon ease up on its hawkish policy, and Jerome Powell has reiterated his commitment to get prices under control as inflation remains?8.3% higher ?than a year ago.

Mimi Duff, managing director at GenTrust, told me that Powell will have to try and avoid a 1980s Volcker-esque mistake that sent the economy into a recession.?

"Powell wants to be more predictable [than Volcker], and needs to see clear and convincing evidence of inflation coming down," she said. "To do this, rates need to be in restrictive territory and stay there for a while."

While Duff doesn't expect markets to react too dramatically?to a 75-basis-point move, since it's largely been priced in already, she did note that the threat of further jumbo moves could pressure stocks.

Powell is tasked with the balancing act of stabilizing prices while?not?tipping the economy into a full-blown recession. GenTrust puts the odds of a hard-landing at 25%, with three-in-four odds of an economic downturn.?

There's a wide range of views on what will be necessary to tame inflation.?Among more dovish observers, Wharton's Jeremy Siegel thinks just another 100 basis points is necessary before the Fed can pivot, while former Treasury secretary Larry Summers says don't be surprised if the Fed goes above 5%.

For this meeting in particular, billionaire David Rubenstein warned that a 100-basis-point hike this week would?shock and depress markets and investors .?

Similarly, CFRA Research said a full-point hike would?unnerve Wall Street , and increase the likelihood that the FOMC would overtighten.?

It's still early perhaps, but looking ahead to the November meeting, there's a chance the downbeat housing market might just lead the Fed to opt for a smaller?50-basis-point move .?

"Markets currently price-in an 80% chance of another 75 basis points hike in November, but we think 50bp is much more likely, and the?parlous state of the housing market ?is a key factor in our forecast," Pantheon Macroeconomics's chief economist wrote in a note.

What's on deck for markets after a third consecutive large rate hike? How effective will it be in taming inflation??Let us know in the comments.

In other news:

2. Morgan Stanley said these 23 stocks provide high, stable, and growing dividend yields.?A team of the firm's analysts hand-picked a batch of names that meet their "dividend sweet spot" criteria.?Here are their favorite companies right now.

3. This black swan fund reportedly banked a 4,144% return during the 2020 market crash.?Universa's flagship fund made huge gains during a brutal stock sell-off two years ago. The company's COO explained why they haven't entered the crypto sector yet —?and the three things that could convince them to get involved.

4. A top fund manager broke down how his inflation-focused ETF is navigating crippling price growth and the possibility of "significant economic destruction."?David Schassler of VanEck told Insider what he's looking for in markets,?and his top recommendations for investors right now.

5. Shares of Ford tumbled 13% on Tuesday after the company said supply-chain inflation will hurt profits by $1 billion.?The legacy vehicle company lost billions in market value yesterday as the stock notched its worst trading day in more than a decade.?Dig into the details here.

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This newsletter was curated by Phil Rosen.