• Note From the Desk | A More Flexible Fed

Notes From The Desk | A More Flexible Fed Jul 27 2022

The Federal Reserve raised the target rate by 0.75% to the range of 2.25-2.5%.  Chairman Powell confirmed that this is close to neutral.

From the press conference:

  • The FOMC is now data-dependant, so the magnitude and pace of future rate hikes is not pre-ordained
  • Chairman Powell believes that modestly restrictive monetary policy is required so the forecast from the previous Federal Reserve Meeting is still valid:
    • Target rate between 3.25%-3.5% by year-end
    • Target rate between 3.75%-4% in early 2023
  • A narrow path to a soft landing still exists

Market Implications:

  • The market is relieved that the FOMC is not on autopilot and now is data-dependent. This reduces the potential for a large overshoot on the hikes leading to a deep recession.
  • With US 10y at 2.78%, long-term rates seem to have little room to drop further in the near term
  • Until inflation shows signs of moving lower, the FOMC remains poised to move rates higher
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