Yesterday’s meeting and announcement was far more interesting than excepted.
There were very subtle hints that the Fed is changing its view on the timing of hikes.
First the obvious:
- View has shifted to two hikes in 2023 from no hikes at the previous meeting
- Nearly a doubling of members expecting a hike in 2022
- Pushing the timeline for when inflation comes back down to 2% well into 2022
The interesting part came in Chairman Powell’s press conference.
He seems to be setting the groundwork to change the Fed’s ‘inflation is transitory’ stance.
On inflation.
“…there is a lot to be humble about among forecasters …it is a highly uncertain business.
We are very much attuned to the risks and watching the data carefully.
…there is so much uncertainty around this. It is just a unique situation that we need to
see how things evolve in coming months, and see how that story holds up, and act accordingly.”
This is a shift away from the forceful banging of the ‘inflation is transitory’ drum
On tapering.
Despite recently denying it was time to talk about tapering, it appears several Fed members want to discuss timing.
Our two-cents.
- Upward pressure on rates to continue well into next year
- If strong employment growth materializes, the risk remains tilted towards an acceleration in the timing of rates hikes and tapering
