The central bank’s latest move put its benchmark short-term rate in a range of 4.5% to 4.75%, its highest level in about 15 years
Fed Chair Jerome Powell is currently taking questions from reporters.David Rosenberg, founder of Rosenberg Research
There was no mention at all of any concern over the economy, but the release did mention that even though inflation has “eased,” inflation is still “elevated.” Unrelenting. And the statement mentioned that at least two more hikes are coming down the pike — stating the need for “ongoing increases” and that the “extent” of “future increases” will hinge on a whole array of factors. All that matters is the plural in both sentences — “increases” and not “increase.
That said, we are near the end of this rates cycle. Just not at the end — even though I believe the macro backdrop is weak enough and inflationary pressures have abated enough to warrant an end to this tightening cycle right now. But remember — this is a Fed Chairman who constantly compares himself to Paul Volcker, and that means he is intent on tipping the economy into recession. Sell strength in equities, which worked all year long in 2022, and maintain a bullish posture in Treasuries.
The market was likely braced for this language to remain in the statement, with traders pricing in at least one more rate hike. The only material change to the communique is that the Fed now says the “extent” of future rate hikes will take into account the lags in monetary policy instead of the “pace”. That could be a hint that policymakers are nearing the end.
For now, our forecast continues to see the Fed raising rates 25bps at each of its next two meetings. That said, the final move we have penciled in is very uncertain and will depend heavily on the data flow, with some signs of underlying inflationary pressures already cooling slightly more than we had previously envisioned.The U.S. Federal Reserve has generally done a good job guiding markets in the near-term and today’s decision was fully expected.
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