Fed Tips End Of Rate Hikes With Inflation Still Miles Above Target
As expected, the Fed raised rates at its May meeting by 25bps in what could be the final hike of the most aggressive tightening cycle in a generation.
Wednesday's move, the 10th consecutive, brought rates to levels which may constitute "sufficiently restrictive" territory, an elusive realm that can only be identified in hindsight (if ever), once inflation begins to recede in earnest.
In the new statement, the Committee tipped its intention to pause. The Fed will "closely monitor incoming infor
A pause is not the end. If inflation reaccelerates — as it seems to want to — the FOMC will be back on the rate-hike train — maybe even as soon as the next meeting (depending on data, of course). Disclaimer: I’m a hawk when it comes to inflation (but our esteemed already knew that).
It would have been cooler if Powell had landed a jet on a carrier with a “Mission Accomplished” banner flying. Just saying….
LOL.
the makings of a memegolf clap
In prior rate hike episodes going back to the 1990s, hikes were stopped with FF 200bp or so above core sticky inflation.
Of course, in those periods, there was little inflation (core sticky CPI about 3% in mid ’90s, 2% in mid-00s, 1% in Powell’s last rate normalization attempt in 2018).
Today, there is lots of inflation, so we are going to pause hikes at FF barely above core sticky CPI.
Wait, that doesn’t sound right.
Perhaps the Fed expects substantial credit contraction (more than just 25-50 bp FF equivalent). Or the Fed is quite worried about financial system stability (and how closely it has supervised banks, ref the Barr report). Or the Fed expects a material recession (although Powell says he personally doesn’t, and I think he’s actually a straight shooter). Or the Fed thinks even a mild recession will snuff out inflation (that stagflation isn’t possible).