Pundits are pouring over the Fed’s new policy statement like Talmudic scholars (without the smarts) but they can save their energy: the Fed did the only thing it could this afternoon by hiking the benchmark rate to by 25-basis points to 4.75-5% and trying to reassure everyone about the soundness of the banking system. While hedging its bets, the Fed targeted a year-end benchmark rate of 5.125% which suggests one more 25-basis point hike before it hangs up its stirrups and holds on for dear life to the bucking bronco it unleashed when it started raising rates a year ago.
In the press conference after the meeting, Fed Chairman Jay Powell spoke more firmly than in the written statement about the fact that inflation is still too high and that the Fed remains committed to getting it back down to 2%. He hastened to add that the Fed remains data dependent and is undecided about future rate hikes. He strongly suggested that if the banking crisis only has a minor impact on economic growth, inflation will likely remain above target and merit more rate increases than originally anticipated. If the crisis slows growth significantly, it will effectively do the Fed’s work for it and limit future increases. Neither scenario, however, is particularly bullish for the economy or for equities but it may take some time for that message to sink in for equity investors.
Keep reading with a 7-day free trial
Subscribe to The Credit Strategist to keep reading this post and get 7 days of free access to the full post archives.