A Reuters story on the Federal Reserve’s latest policy decision landed on my terminal. Well, there was no surprise at all and I actually really wasn’t expecting too much. Indeed, the powerful Federal Reserve kept their rates steady at a 22-year high. As expected, Powell acknowledged the progress we have made so far in returning to stable prices, while also leaving the door open to an additional rate hike if progress is derailed.
Powell noted that he and his colleagues will have to tread carefully as the US economy begins to show more signs of strain. The comments were somewhat unexpected given the robust GDP growth and jobs numbers reported in the US over recent months, and the fact inflation is still above target at 3.7%.
Bond yields across the curve plunged, and stock prices rose for a third consecutive day. I don’t expect any further Fed rate hikes from here. The next move will be a cut, not a hike. The next jobs data will be key for the bulls and bears. The bears expecting another crash in the near future should be prepared to be disappointed. That is my story, and I’m sticking to it.
Here is a section:
Fed Chair Jerome Powell said the situation remained something of a riddle, with US central bank officials willing to raise rates again if progress on inflation stalls, wary that a rise in market-based interest rates may begin to weigh on the economy in a significant way, and trying not to disrupt, any more than necessary, an ongoing dynamic of steady job and wage growth.
In a press conference after the end of a two-day policy meeting, Powell said the better course of action for now, given the uncertainties, was to maintain the Fed’s benchmark overnight interest rate in the current 5.25%-5.50% range, and see how job and price data evolve between now and the next policy meeting in December.
Roughly 20 months into the Fed’s aggressive tightening of monetary policy, Powell said it remained unclear whether overall financial conditions were yet restrictive enough to tame inflation that he still considers to be far above the central bank’s 2% target.
Powell also acknowledged that a recent market-driven rise in Treasury bond yields, home mortgage rates and other financing costs could have their own impact on the economy as long as they persist, and Fed officials will be watching those effects closely as they consider whether to hike the central bank’s policy rate again.