It's getting to the point where these blog posts about FOMC decisions can be done on a cut-and-paste basis. As expected, the Federal Reserve today imposed its third fourth straight 75 basis point increase in the funds target range, which now stands at 3.0 - 3.25 3.75-4.0 percent. The press release signals there are more rate hikes to come, and also commits the Fed to continuing its policy of quantitative tightening.
As was the case after the last two rate hikes, the press release's discussion of the economic background to its decision is skimpy. although Chair Jerome Powell's opening statement at his post-FOMC press conference was considerably more expansive and detailed. Apart from a short paragraph on the impact of Russia's depredations in Ukraine, this is the press release's entire text on the economy:
Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.
Once again, the release offers little indication that the Fed yet sees any signs that its tightening policies are having the desired effect on either the real economy or inflation. Nor is there any mention of inflation expectations, even though keeping these in check is surely the main goal of this series of sharp rate hikes, since there is not much monetary policy can realistically do about the underlying causes of the recent inflation spike.
The press release states that the FOMC anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. It goes on to add the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. That sentence, together with the customary statement that the Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals, has initially been interpreted by financial markets as a hint, however faint, at the possibility of a "pivot".
It is something of a surprise that the Fed is not making any attempt to convince markets that its policy approach is working. Headline CPI is still way above target on a year-on-year basis, but by definition half of the data points that make up that number are more than half-a-year old. The latest monthly prints have been much lower than those seen at the start of the year. While that owes much to the fall in gasoline prices, it does appear that the peak in inflation has passed, even if the year-on-year rate will only reflect that fact as the next few months unfold.
Are there more "supersized" rate increases to come? Asked about this at the press conference, Powell did not rule it out, although he suggested that the question of moving to a more moderate pace of tightening would likely be on the agenda at the next FOMC meeting. The funds rate is now closing in in the most recent (i.e. September) 'dot plot" percent projection of a 4.6 percent rate in 2023. It seems likely that the pace of tightening will slow soon, but there is every indication that FOMC believes that it will take a prolonged period of high rates to get inflation back to the target.
No comments:
Post a Comment