{"id":57578,"date":"2022-08-23T08:00:39","date_gmt":"2022-08-23T12:00:39","guid":{"rendered":"https:\/\/www.ino.com\/blog\/?p=57578"},"modified":"2022-08-22T15:03:23","modified_gmt":"2022-08-22T19:03:23","slug":"the-feds-intentions","status":"publish","type":"post","link":"https:\/\/wwwtest.ino.com\/blog\/2022\/08\/the-feds-intentions\/","title":{"rendered":"The Fed's Intentions"},"content":{"rendered":"

As we all know, there is a debate going on in the market about whether or not inflation has finally started to recede and therefore the Federal Reserve can start to let up on the brake pedal and \u2014 this seems a stretch \u2014 even start lowering interest rates and easing monetary policy in the near future. <\/p>\n

Right now, those who believe the Fed is done tightening are winning the debate, witness the sharp rise in equity prices over the past two months. But at the same time several Fed officials have been warning that they are not done tightening yet \u2014 not by a long shot \u2014 and that more rate hikes are in the offing. <\/p>\n

Notably, Minneapolis Fed President\u00a0Neel Kashkari\u00a0said last week that \u201cthere\u2019s a disconnect between me and the markets,\u201d adding that it was \u201cnot realistic\u201d that the Fed would be lowering rates in the next six to nine months. <\/p>\n

St. Louis Fed President James Bullard was equally blunt, telling the Wall Street Journal that he would \u201clean toward\u201d another 75-basis point rate hike at the Fed\u2019s next scheduled meeting beginning September 20. He said he expects high inflation \u201cto prove more persistent than what many parts of Wall Street think.\u201d<\/p>\n

<\/div>\n

Yet many investors don\u2019t believe them.<\/p>\n

Does this mean that the Fed needs to make a much stronger message about its intentions, or is it content to let the market do what it wants to do and suffer the consequences if it has misjudged? Or are these investors correct in their assumptions?<\/p>\n

Throughout his tenure, Fed Chair Jerome Powell has been not only market friendly but also keen on making sure the market understands what the Fed is up to. He doesn\u2019t want any surprises. So does this mean that he is ok with what the market is doing, or if it\u2019s wrong in reading the Fed, does he need to make a much clearer message?<\/p>\n

Later this week the Federal Reserve Bank of Kansas City will host its annual Jackson Hole Economic Symposium in Wyoming. That seems like a good time for Powell to make it more crystal clear what the Fed\u2019s intention are.<\/p>\n

The Fed\u2019s last monetary policy meeting ended on July 27 \u2014 nearly a month ago \u2014 at which time it raised its target interest rate by 75 basis points for the second consecutive meeting. It doesn\u2019t meet again until September 20 \u2014almost a month away \u2014 so Jackson Hole seems like an appropriate time for the Fed to make a more unmistakable message about its intentions, if in fact it feels the need to.<\/p>\n

Of course, if the Fed felt the market was going way off kilter in its judgement of Fed intentions, it could always raise rates between scheduled monetary policy meetings, although Powell has indicated he doesn\u2019t prefer to do that. <\/p>\n

But that doesn\u2019t mean he can\u2019t if he wanted to. <\/p>\n

After all, during past crises, the Fed had no problem lowering interest rates outside of meetings; if inflation is as big and as persistent a problem as we are told, then raising rates between meetings \u2014 maybe by 25 basis points instead of 75, in order to send a message \u2014 wouldn\u2019t be out of line. <\/p>\n

Of course, the Fed has only itself to blame if it\u2019s not sending the markets a clear enough signal. For example, the minutes of the Fed\u2019s July 26-27 meeting, released last week, said that \u201cParticipants judged that, as the stance of monetary policy tightened further, it likely would become appropriate at some point to slow the pace of policy rate increases<\/u> while assessing the effects of cumulative policy adjustments on economic activity and inflation\u201d (emphasis mine). <\/p>\n

<\/div>\n

Yet at the same time some Fed officials said they saw \u201ca \u201csignificant risk \u2026 that elevated inflation could become entrenched if the public began to question\u201d their seriousness in bringing it under control. About the only thing the Fed seems to be clear about it is there a difference of opinion within the Fed itself. <\/p>\n

So is the market correct in thinking that monetary easing is just around the corner? <\/p>\n

Based on the inflation data we\u2019ve received so far and the comments by Fed officials, that seems unlikely. But then again, what\u2019s your definition of \u201cat some point?\u201d Even Bullard said he didn\u2019t \u201creally see why you want to drag out interest rate increases into next year.\u201d Is that close enough to justify the current bullishness in the stock market?<\/p>\n

The Jackson Hole meeting is always closely watched by the market. Given the huge distance between Fed meetings, this year\u2019s gathering will be particularly so.<\/p>\n

George Yacik<\/a>
\nINO.com Contributor<\/p>\n

Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

As we all know, there is a debate going on in the market about whether or not inflation has finally started to recede and therefore the Federal Reserve can start to let up on the brake pedal and \u2014 this seems a stretch \u2014 even start lowering interest rates and easing monetary policy in the […]<\/p>\n","protected":false},"author":16,"featured_media":56464,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6920],"tags":[1750,230,9054,3554],"class_list":["post-57578","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-ino-com-contributors","tag-inflation","tag-interest-rates","tag-jackson-hole","tag-the-fed"],"yoast_head":"\nThe Fed's Intentions - INO.com Trader's Blog<\/title>\n<meta name=\"description\" content=\"Does the Fed need a stronger message about its intentions, or is it content to let the market do what it wants and suffer the consequences?\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.ino.com\/blog\/2022\/08\/the-feds-intentions\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The Fed's Intentions - 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