Rick Rieder Profile picture
Nov 2 15 tweets 9 min read
The @federalreserve’s #FOMC has now moved in 75 basis point increments four times this year to get to a sought-after #policy destination very quickly.
Yet, the destination seems to have moved further away with each subsequent elevated #inflation print, and with #employment in the country remaining very tight.
Hence, while moving the #FederalFunds rate at a very fast 75 bps increment seemed almost inconceivable several months ago, especially as the #Fed was still undertaking quantitative easing (#QE) in March, we have become used to this extraordinary increment.
That’s because the #Fed needed to get interest rates (and #liquidity) from levels that were very accommodative (overly so) to a place that is finally approaching restrictive, over the span of a few months.
The persistent stickiness of elevated levels of #inflation has forced the #Fed to make “75 bps speed” a necessary path toward its primary goal of reducing inflation, but moving at a 75-bps clip now seems to be a question given how far the #Fed has already moved at this point.
Before today, markets had taken some relief from early indications that the #Fed may downshift its rate hike increment, while a clear movement toward the central bank’s ultimate target was still on the docket.
Some have called this evolution in policy a “#pivot” and have become overly optimistic about what it implies for #markets
…but we learned today that the #Fed isn’t finished moving rates higher, if the Committee believes it’s required, based on the data.
However, we think that once the Fed achieves an adequately restrictive target policy rate, it is likely to pause at that level for a long time, as it observes the influence policy will have on the #economy and rates of #inflation over time.
Yet, we do think the beating that the #markets have experienced this year may now be executed with a lower level of intensity than before…
…as the #Fed approaches a clearly restrictive interest rate for the economy (while still draining #liquidity by reducing the size of its balance sheet).
That’s partly because we’ve been experiencing a dynamic in #markets whereby each data point associated with potential policy movement (#payrolls, #CPI releases and, of course, FOMC meetings) have added an ‘event premia’ to already fairly volatile markets.
When the #Fed makes the transition we have described, and as #inflation eases back toward more normal levels, this added market #volatility should abate.
Still, #markets should consider this #Fed as very serious, and willing to move more aggressively, if need be, over the coming months.
Our sense, though, is that the momentum of #inflation, and #hiring, will moderate lower from here, and consequently so will the Fed’s pace of policy #tightening, but the Fed clearly has to see that data first.

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More from @RickRieder

Nov 4
Earlier this week the @federalreserve raised #policy rates at an extraordinary 75 basis point increment (its fourth time doing so this year), in an attempt to moderate excessively high levels of #inflation.
Still, if the central bankers were hoping to see signs of slowing in the persistently solid #LaborMarkets, as an indicator that policies were slowing growth and in turn #inflation, they may be somewhat disheartened by today’s data.
Indeed, nonfarm #payrolls increased by 261k jobs in Oct, with private employment rising an average of 262k/month over the past three months, which does not yet imply that the slowing that policymakers believe we’ll need to see to tame #inflation has arrived.
Read 16 tweets
Sep 21
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.
Read 13 tweets
Sep 2
Today’s #JobsReport revealed an #economy that is producing #jobs at a slower pace than it has over the prior several months.
That said, a historic number of jobs have been created in this recovery since the fall of 2020, so a slowing in the pace of #growth isn’t unexpected.
Even with today’s somewhat slower rate of #hiring at 315,000 jobs for the month of August, the 3-month and 6-month average of #payroll gains has been 378,000 and 381,000 jobs, respectively, which is clearly indicative of slowing today from a point of strength.
Read 12 tweets
Aug 26
In his @federalreserve #JacksonHole speech #ChairPowell stated emphatically that the #FOMC’s “overarching focus right now is to bring inflation back down to our 2 percent goal. Price stability is the responsibility of the Federal Reserve and serves as the bedrock of our economy.”
In other words, we take his statement today to mean that the #Fed won’t be easily swayed into reversing rate #hikes next year, and will stay with the elevated Funds rate for a long time.
The #Fed has clearly been (appropriately) rushing to get to a destination of #inflation-denting restrictive rate (and #liquidity) policy in order to break extremely high levels of inflation, while hopefully not thrusting the economy into a deep #recession.
Read 11 tweets
Aug 24
As we approach the @federalreserve’s monetary policy conference at #JacksonHole this week, a question we’ve been asking ourselves is whether the abundance of survey-based, and goods-oriented, #economic data may be overstating the weakness in the #economy as a whole?
Without question, many broad-based surveys, including those focused on #ConsumerConfidence and small #business optimism, are painting a very bleak picture of the #economic trajectory. Image
And at the same time, many goods/manufacturing sector data points are portending continued significant weakening of the sector. Image
Read 12 tweets
Aug 10
The headline #inflation data today moderated a bit on the back of falling #gasoline prices, but it’s still running at a worryingly high rate.
Over time, we think the slowdown in #economic growth, the continuation of the @federalreserve’s assertive #HikingCycle and the possibility of resolution with several persistent supply chain issues should influence broad #inflation lower.
Still, while #CorePCE inflation (the #Fed’s favored measure) is likely to moderate in the coming months, it’ll still remain well-above the Fed’s 2% #inflation target.
Read 15 tweets

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