Today’s @federalreserve’s Federal Open Market Committee (#FOMC) meeting witnessed another historic 75 bps increase to policy rate levels (to a range of 3.0% to 3.25%) in an effort for the #CentralBank to manage its number one priority: fighting persistently high #inflation.
The #Fed, including in today’s meeting statement and in the Chair’s press conference, has been clearer than arguably any central bank in identifying its current goal and moving #InterestRates and #liquidity provision to achieve it.
Indeed, by moving the #Fed Funds rate for the third time in 75 bps increments we see clear evidence of a strong desire by the Committee to temper demand as a way to achieve its goal of #price moderation.
The question today, then, becomes how close are we to a #policy resting place, whereby the #Fed could wait for restrictive policy to work its way through the #economy over coming months, allowing the now famous “long and variable lags” to tamp down inflation?
That terminal rate plateau seemed much closer at hand a couple of weeks ago, before the last #CPI report where #inflation stayed considerably higher than many anticipated.
As such, the August #CPI report was a watershed moment for #markets, and probably for the Fed, in terms of evaluating the momentum of #inflation improvement, making subsequent reports increasingly relevant to understanding the policy path.
A number of other concurrent indicators, including #commodity prices, freight costs, higher #inventory levels in some arenas, all suggest some near-term #inflation improvement. Yet, the #Fed has to see that come through before changing its near-term battle against higher prices.
Hence, the #markets and the #Fed will be tuned into the upcoming data, but will also keep one eye very clearly directed toward the labor market, to see if the Fed’s actions are starting to impact #employment demand.
The coming weeks and months will be very important for evaluating how the real #economy adjusts to #policy adjustments.
Historic fiscal #stimulus infusions have come through the system, with more coming, and hence the lags can take longer to see than would have been the case in the past.
We think the #Fed will move another few times from here, with the #data determining the veracity of that and how much longer they will have to go.
Still, we do think that #markets, and consequently the economy, will become “Fed up” with too much tightening, if growth (and #employment) are tangibly slowing alongside of these tighter #policy moves.
Is the #economy there yet? No, not yet, but #investors are clearly watching every economic and corporate report and survey to see where #InflectionPoints are presenting themselves (including global conditions).
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