Fed Signals Smaller Raises, but Ultimately Higher Rates
Federal Reserve issues FOMC statement
The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.
https://www.federalreserve.gov/newsevents/pressreleases/monetary20221102a.htm
Fed Signals Smaller Raises, but Ultimately Higher Rates
“The question of when to moderate the pace of increases is now much less important than the question of how high to raise rates and how long to keep monetary policy restrictive,” he said at a news conference Wednesday.
Mr. Powell also warned that reducing the size of rate increases didn’t mean the Fed thought it was close to pivoting away from raising rates.
“It is very premature to be thinking about pausing,” said Mr. Powell. “We think we have a ways to go.”
Nick Timiraos WSJ Nov. 2, 2022
Federal Chief Tells Markets to Focus on Interest-Rate Endpoint, the so-called terminal rate
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The Fed has been misunderstood before, but shouldn’t be this time. Investors need to stop imagining pivots that will only lose them money.
Ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.
The statement came out at 2 p.m. on the Eastern seaboard. As Chair Jerome Powell’s press conference began 30 minutes later, the S&P 500 was sitting on a gain of above 1% for the day. By the close of trading, it was down almost 2.5% after withstanding an intra-day selloff of 3.4%:
Markets took Powell at his word, and bid up their estimates of future fed funds rates. Their expectation of the peak, probably reached by May of next year, is for the first time above 5%
If Powell isn’t pleased with his day’s work, he should be. As my colleague Jonathan Levin puts it, it was a masterful performance in which he simultaneously prepared the way for a step down in hikes, while tightening financial conditions.
John Authers Bloomberg 3 november 2022
Here’s the key sentence from the statement that the market bulls seized on before Powell spoke: “In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”
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