Hope everyone had a happy & healthy JPow Day yesterday. We know the stock market sure did.
The first FOMC Meeting of 2023 came and went, and you're damn right that it lived up to expectations…both literally and figuratively. Going into Wednesday, everyone expected Powell & Co. to raise by 25 bps, and that's exactly what they did.
The Federal Funds Rate has officially reached its highest level since late September 2007, entering a target range of 4.5% - 4.75%.
Everyone saw it coming, but it seems like Mr. Market did carry just a bit of worry that the hike might come in higher than expected. When they didn't, markets ripped right at 2 pm when the announcement was released, and the party kept going all the way to close.
But, as long-time apes know, the cryptic language of "Fedspeak" employed following the hike itself is arguably just as important. In addition to all its technical tools, the Fed's tool of "Forward Guidance" seems to have only increased in importance since Bernanke brought it into the mix during the GFC. Some of the most important quotes from Powell today include…
- "Given our outlook, I don't see us cutting rates this year, if our outlook comes true"
- "My base case is that there will be positive growth this year"
- "We can now say I think for the first time that the disinflationary process has started."
- "It would be very premature to declare victory, or to think that we've really got this."
- "And it's our judgment that we're not yet at a sufficiently restrictive policy stance, which is why we say that we expect ongoing hikes."
Now, those are just some of my favs. While some of those statements may seem contradictory side-by-side, it's important to remember that the Central Bank Chair speaks extremely technically with well-rehearsed responses ready to go for the 2:30 pm press conference, so specificity matters. Let's make a (likely sad) attempt at a TLDR.
Powell basically had 3 important messages to get across. Those include:
- The U.S. economy is seeing the beginning of a stable inflationary downtrend
- The Central Bank is not yet convinced that rates and other monetary policy conditions are restrictive enough to promote sustained, long-term growth
- Rate hikes could continue, and rate cuts are not yet on the table
One quote that didn't make the above list but is an honorable mention includes when JPow stated that "If we do see inflation coming down much more quickly, that will play into our policy setting, of course." If it isn't obvious yet, the Fed is essentially fighting itself.
Basically, they're saying more rate hikes are likely going to be necessary, but that going forward, they will consider cumulative policy tightening and react to data that gets released between now and March 22nd.
Am I getting the message across? It's complicated, and I'm not gonna sit here and pretend like I understand JPow's psyche. Just know things are getting better, but we're not out of the clear yet. We're just glad that instead of fighting with markets like they did all last year, the Fed is officially fighting itself.
Nemo cupiditate dolor incidunt hic odio eligendi incidunt. Aspernatur vitae quia hic fuga. Iste iure et exercitationem neque similique sunt reiciendis quos. Sunt consectetur quibusdam molestias accusantium dolores. Non veritatis mollitia omnis.
Neque consequatur ad repellat placeat doloremque necessitatibus doloremque explicabo. Et est sed aut vel dolorem facilis possimus.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...