Notes from the Desk – The Powell Pause (kinda)
As expected, the Federal Reserve (Fed) delivered a 25bps hike, establishing the range of the Fed funds rate at 5-5.25%
The accompanying statement dropped language referring to ‘some additional policy firming is needed,’ and replaced it with more flexible language about considering economic and financial developments.
The Fed noted that there was some cooling in wage growth, business investment, and job openings, suggesting that higher rates are having an impact on the economy. Furthermore, the turmoil in regional banks means tighter credit conditions which should do some of the Fed’s work for them.
Insights from presser.
- The Chairman believes the US will avoid a recession while bringing inflation down to 2%. Interestingly, he did admit that such an outcome had little historical precedent.
- Because it will take several months to determine whether inflation is firmly heading lower, it is premature for the Fed to consider easing rates.
- Despite several bank failures, he described the banking system as ‘sound.’
Implications.
- The bar for more hikes is very high
- Despite Powell’s ‘higher for longer’ comments, the bond market is pricing in 3 cuts this year.
