How impatient the Fed’s Powell is
The comment, ahead of the Fed meeting, by Daleep Singh, Chief Global Economist of PGIM Fixed Income
What is meant by a “slightly higher” peak rate? The centerpiece of the Fed 's quarterly projections will be the median expectation of the key rate to peak this cycle. Chairman Powell signaled in his appearance at Brookings Institutions in late November that the rate is likely to be "a little higher" than projected in the September projections. The market has now translated that into a 5% spike, up 25 basis points from the Fed's previous forecast. However, given the staggering payroll number in the November jobs report and the overwhelming importance of the inflation data, which will be revealed just a day before the conclusion of the Fed meeting, for President Powell and the other members could be a decision to be made in record time.
To what extent will the Fed carve out more flexibility on the pace, peak and length of the tightening cycle? It could do so by changing the statement to anticipate that “some further hikes” in the key rate, rather than “continuous hikes” will be appropriate. President Powell could also reiterate at the press conference that the slowdown and possible pause represents prudent forms of risk management, given the time it takes for tighter monetary policy to reduce inflation and the environment in which so many central banks, in such a drastic way they are putting a brake on an already weak global economy.
How eager is President Powell to compromise the Christmas rally? The risk of carving out substantially more flexibility over the pace, peak and length of the Fed's tightening cycle is that this message will be interpreted dovishly by market participants, triggering further easing of financial conditions and complicating the Fed's path towards the achievement of its inflation target. To avert that risk, we expect President Powell to point out that the tightening cycle “still has some way to go” to bring labor markets back into balance and cool down the prices of services in the economy.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/quanto-e-impaziente-powell-della-fed/ on Tue, 13 Dec 2022 10:02:37 +0000.