{"id":23049,"date":"2023-06-15T12:39:27","date_gmt":"2023-06-15T16:39:27","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/the-feds-rate-hike-dilemma-whether-to-follow-its-actions-or-its-words\/"},"modified":"2023-06-15T12:39:28","modified_gmt":"2023-06-15T16:39:28","slug":"the-feds-rate-hike-dilemma-whether-to-follow-its-actions-or-its-words","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=23049","title":{"rendered":"The Fed’s Rate Hike Dilemma: Whether to Follow Its Actions or Its Words"},"content":{"rendered":"
\n

Decoding where the Federal Reserve is headed in its fight to rein in inflation may require choosing whether to put more stock in the central bank\u2019s actions on Wednesday, or its words.<\/p>\n

The Fed\u2019s policy-making arm opted to hold interest rates steady for the first time in 15 months, pressing pause on its aggressive monetary policy tightening path as it evaluates the impact its 10 rate hikes are having on the economy. <\/p>\n

\n

The decision signals, at least to some extent, the central bank feels it has made progress on inflation, and is looking to slow its pace of tightening to avoid pushing the economy into a recession.<\/p>\n

But the message was undermined by strong signaling from Fed officials that rate hikes are coming\u2014likely two more this year, according to the Fed\u2019s updated Summary of Economic Projections. The median expectation for where officials now see the federal-funds rate landing by the end of this calendar year climbed to 5.6% in June, up from 5.1% in the March forecasts, implying another 50 basis points of tightening from the current level of 5% to 5.25%.<\/p>\n

Their mission, in other words, is very much not yet accomplished. They are taking a breather, and then it is straight back to work.<\/p>\n

\u201cIf you look at the core PCE inflation overall, looking at it over the last six months, you\u2019re just not seeing a lot of progress,\u201d Chairman Jerome Powell told reporters in his post-meeting press conference. \u201cWe have to get inflation down to 2%\u2014and we will\u2014and we just don\u2019t see that yet.\u201d<\/p>\n

The disconnect between the Fed\u2019s decision to pause and Powell\u2019s emphasis there is more work to do sent divergent messages to investors, who had been braced for the central bank to hold rates steady but were thrown by the suggestion of another two rate hikes this year. And it begs the question of where the central bank is truly headed moving forward. If there were really a need for more tightening, why not do it now?<\/p>\n

Powell, for his part, regularly returned to the notion that inflation has further to fall and the labor market remains far stronger than anyone expected. Perhaps most tellingly, he at one point referred to the decision not to raise rates in June as a \u201cskip\u201d\u2014a term that would suggest another hike is coming in July\u2014and then corrected himself. \u201cI shouldn\u2019t call it a skip,\u201d he said.<\/p>\n

\u201cHis tongue slip mention of a \u2018skip\u2019 indicates a rate hike is nearly guaranteed in July,\u201d Greg Daco, chief economist with EY-Parthenon, wrote. \u201cAnd it likely explains how Powell managed to ensure a unanimous vote in favor of a hold despite diverging views amongst policymakers.\u201d<\/p>\n

The counterargument, however, is that the Fed could be talking a bigger game than it expects to play, and the rate-hike cycle really is almost finished. If officials really believe they need another half-point of tightening this year, then they should have raised rates on Wednesday\u2014unless they are hoping their tough talk can do some of the financial tightening for them.<\/p>\n

Some Fed officials could be hoping the decision to adjust rate-hike forecasts upward \u201cwill lead to meaningful tightening in financial conditions that will in turn act as a brake on the pace of economic growth and inflation,\u201d wrote Richard Moody, chief economist with Regions Financial.\u00a0<\/strong>And they might not necessarily believe, he added, \u201cthat further rate hikes will ultimately be required.\u201d<\/p>\n

\u201cThe question remains whether the reality will live up to the rhetoric,\u201d Moody wrote.<\/p>\n

Other analysts were more direct. \u201cDon\u2019t believe the hype,\u201d TS Lombard\u2019s Steven Blitz wrote. \u201cTake this hawkish skip for what it is, surface noise on a long playing record.\u201d<\/p>\n

Write to Megan Cassella at megan.cassella@dowjones.com<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Decoding where the Federal Reserve is headed in its fight to rein in inflation may require choosing whether to put more stock in the central bank\u2019s actions on Wednesday, or its words. The Fed\u2019s policy-making arm opted to hold interest rates steady for the first time in 15 months, pressing pause on its aggressive monetary […]<\/p>\n","protected":false},"author":1,"featured_media":23050,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-23049","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nThe Fed's Rate Hike Dilemma: Whether to Follow Its Actions or Its Words | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Decoding where the Federal Reserve is headed in its fight to rein in inflation may require choosing whether to put more stock in the central bank\u2019s\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" 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