Ding ding ding! That was all the market wanted to hear
“As the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases while we assess how our cumulative policy adjustments are affecting the economy and inflation,” the Fed chair’s statement said.
Other comments in the same statement from Powell make clear that “another unusually large increase” in interest rates could still be needed at the next meeting.
Katie Martin FT 29 July 2022
https://www.ft.com/content/2a952f27-acdd-49f3-bd42-572487f781e3
The Fed chief said Wednesday that policy makers will be monitoring whether financial conditions -- a cross-asset measure of market stress -- are “appropriately tight.”
But in the days since the central bank’s second straight 75 basis point hike, the measure is now at a level looser than before the first rate hike in March.
“They don’t want easier financial conditions, because they want lower demand,” Bespoke Investment Group global macro strategist George Pearkes said. “Basically, markets are assuming we’ve hit peak hawkishness and we’ll be easing sooner than expected. I’m skeptical the Fed is going to endorse that.”
Treasury yields dropped across the curve as well, with 10-year Treasury yields dropping to 2.65% after reaching 3.5% in June.
Swaps show that traders expect the fed funds rate to peak around 3.3% before the end of 2022, less than a percentage point above its current level. At one point in recent months, that level was approaching 4%.
Bloomberg 29 July 2022
“The Fed is trying to get Goldilocks,”
Rebecca Patterson, chief investment strategist at Bridgewater Associates.
“I think it’s going to be almost impossible for the Fed to get everything it wants. The porridge is going to be too hot or too cold.”
Bloomberg 30 July 2022
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