As you were handing out candy to – or walking the ghostly neighborhood among – the Nemos, Princess Ariels and Lightning McQueens, the Gouls and Goblins were scheming.
In fact, the fix is in – for another 75-basis point hike in the Fed Funds interest rate, that is. The horror of it all!
Even though 11% of Fed futures traders believe the Fed will raise its target rate by a mere 50 basis points on Wednesday, a 4th-straight increase of 0.75 percentage points is locked in.
The Federal Reserve just can’t help itself.
But Courtenay Brown and Neil Irwin say the more important thing to watch is what Fed Head Jerome Powell says at his post-meeting presser about what comes next.
They add that Powell and Co. face “a delicate balance” between signaling to Wall Street on the one hand that they will eventually slow down to “a more cautious pace of tightening” – without appearing to no longer being as committed to bringing down inflation on the other.
By Dave Allen for Discount Gold & Silver
As you were handing out candy to – or walking the ghostly neighborhood among – the Nemos, Princess Ariels and Lightning McQueens, the Gouls and Goblins were scheming.
In fact, the fix is in – for another 75-basis point hike in the Fed Funds interest rate, that is. The horror of it all!
Even though 11% of Fed futures traders believe the Fed will raise its target rate by a mere 50 basis points on Wednesday, a 4th-straight increase of 0.75 percentage points is locked in.
The Federal Reserve just can’t help itself.
But Courtenay Brown and Neil Irwin say the more important thing to watch is what Fed Head Jerome Powell says at his post-meeting presser about what comes next.
They add that Powell and Co. face “a delicate balance” between signaling to Wall Street on the one hand that they will eventually slow down to “a more cautious pace of tightening” – without appearing to no longer being as committed to bringing down inflation on the other.
A Balancing Act They Just Can’t Win.
I agree with Brown, Irwin and others who believe the Fed “has to slow down its rate campaign eventually.”
It’s already probably pushed the economy down a path that will end in a significant recession within the next two quarters.
Thus, how Powell delivers the Fed’s message on Wednesday afternoon is loaded with potential consequences, given how the markets have rallied at any suggestion of a turn in policy in recent months.
In fact, Brown and Irwin say the mere possibility that the Fed will slow down and raise rates only half a percent in December “could fuel a stock and bond market surge.”
And that would have the opposite effect of the tighter financial conditions that the Fed wants to see.
High-frequency computer algorithms, beware!
It’s the classic perception-is-reality conundrum. Indeed, if the public simply perceives that the Fed’s commitment to bringing inflation under control isn’t 100%, its credibility will be hurt – further.
Brown and Irwin point out that the case for slowing down “rests on the idea that monetary policy works with long lags.” So, the cumulative rate hikes already enacted since March has only started to slow down GDP growth.
Fed officials say they don’t like further burdening the economy (how about consumers and businesses?) with more 75 basis point hikes when they don’t yet know the full extent their actions to date have had.
Why Do Anything?
I have a simple idea: why don’t they take no action at all on Wednesday and leave rates alone for a month?
Just hold on for another four-week cycle of metrics – jobless claims, jobs added, inflation, consumer spending and so forth.
In short, wait; do nothing. Nada. That in itself is doing something – leaving rates as they are until they meet again.
Just sit back and see what happens – in the bond market, with equities and precious metals, with mortgage rates, currencies and the like.
As Brown and Irwin astutely observe, the Fed and the markets have been stuck in a feedback loop for months now, even longer, if you count the months last year when the Fed should have started to tighten.
They remind us that investors interpreted Powell's July press conference as signaling that the tightening would soon end, and markets soared as a result.
Then, a month later, Powell pushed back somewhat on that theme, and markets took a nosedive, fueling wider concern about a possible global recession.
Was that the cause of other global central banks slowing their rate hikes? The Bank of Canada approved a smaller-than-expected hike last week, and the European Central Bank is suddenly less hawkish on future rate rises.
Alas, Powell will likely use Wednesday’s press conference – following the 75 basis point hike – to once again assure markets that the Fed’s anti-inflation resolve is strong, while being flexible enough to adapt to changing data in the months ahead.
Forget Trick or Treat then. We’re just gonna have to wait for an early Christmas present at the Fed’s December meeting.
As Vincent Price would say, “Hoo, hoo, hoo, hoo, ha, ha, ha, ha!”