Fed to slow rate hikes

"The time for moderating the pace of rate increases may come as soon as the December meeting. -- Fed chairman Jerome Powell

From "Jerome Powell Signals Fed Prepared to Slow Rate-Rise Pace in December" posted Wednesday:

Federal Reserve Chair Jerome Powell indicated the central bank is on track to raise interest rates by a half percentage point at its next meeting, stepping down from an unprecedented series of four 0.75-point rate rises aimed at combating high inflation.

Mr. Powell, in a speech Wednesday, said an overheated labor market needed to cool more for the Fed to be confident that inflation would make durable downward progress toward its 2% goal.

Because the Fed has raised rates rapidly and it takes time for those moves to influence the economy, it would make sense for officials to slow rate increases, he said in remarks prepared for delivery at the Brookings Institution. “The time for moderating the pace of rate increases may come as soon as the December meeting,” he said.

My take: The Street will like this.

7 Comments

  1. Robert Paul Leitao said:
    @PED The step down in the size of rate hikes beginning at the December FOMC meeting has been uniformly broadcast by several Fed officials over the past few weeks. What might be news is a fifth consecutive 75 basis point increase is pretty much off the proverbial table for active discussion. Reducing the size of the incremental increases in the fed funds rate is less of an issue than a determination of the terminal rate at which the Fed will pause increases in rates. Also, the duration of the current tightening cycle (how long rates will remain elevated) is an open question. In my reading, the market has been expecting a Fed “pivot” and the market’s expectations for a significant change in current Fed policy anytime in the next few to several months may prove to be unrealistic.

    5
    November 30, 2022
    • Mark Visnic said:
      @Robert, as you point out the FOMC telegraphed clearly that the lag effect of rate increases makes smaller increases more prudent to gauge the impact more precisely. The market didn’t rally so much on that already discounted news. The rally occurred imv because for the first time in months, Powell evoked reasonableness. He has portrayed panic and now he has less reason to be panicked for failing to raise rates on a more moderate pace sooner.

      There likely will be no pause after December nor in February as the target rate gets to 4.75%-5.00% but, the market doesn’t need a pause to rally now. It wants reasonableness and authentic data dependence. The market has been mortified of an egregious FOMC policy mistake and the FOMC hasn’t, until today, given much reason to believe that it won’t.

      The terminal rate is the question but, I’m assured the terminal rate will be driven by data.

      I’ve thought that inflation can fall faster here because it rose so fast. This isn’t institutionalized inflation and it isn’t structurally demand driven as in the 60s-80s. If that is true, the terminal rate could be 4.75-5.00% or 5.00%-5.25% and the FOMC pauses after February (50 bps increase) or March (a final 25 bps increase).

      The tailwinds become more viable now. A falling dollar, less risk of credit stress, and peaking rates. The 10 year T, imv already peaked.

      3
      November 30, 2022
      • Robert Paul Leitao said:
        Mark: Thank you for the analysis. In sequence over the next three meetings I’m expecting 50/25/25 on fed funds rate increases with an outside chance of a 50/50/25 sequence for December, February and March. Either way, the front loading has been done following a nearly epic policy mistake early this year by ignoring the data. I don’t think the market has fully priced in the impact of this year’s rate increases. I’m looking for a market recovery (the next bull market) to commence in 2H 2023 and/or early 2024. At this time I’m a bit cautious for the next few/several months. Anyone playing the “long game” has little to be concerned about, in my view. I do expect a volatile 1H 2023 for the market. No surprise to see low/no dividend paying equities rebound today.

        0
        November 30, 2022
  2. Bart Yee said:
    Let’s look at another possible Apple turnaround tailwind – Foreign Exchange improvements, as of Nov. 30, 2022

    USD vs currency – 1 mo, from Sept/Oct peak, YTD
    GBP (£) -4.2%, -11.1%, +12.0%
    EUR (€) -4.4%, -8.0%, +9.1%
    NZD (NZ$) -7.65%, -11.7%, +8.4%
    AUD (AU$) -5.11%, -9.14%, +6.9%
    JPY (¥) -5.85%, -9.4%, +19.6%
    CNY (Yuan) -1.9%, -3.25%, +11.5%
    INR (Rupee) -1.3%, -2.45%, +9.2%
    MYR (Ringgit) -5.7%, -6.4%, +6.4%

    Whereas the Sept quarter saw rising Forex headwinds, the current December quarter has seen Forex improvements from earlier highs in each of Apple’s major markets, although China and India gains are somewhat small. Still, any Forex improvement is welcome.

    With today’s Fed commentary, will we see further US Dollar strength erosion?

    4
    November 30, 2022
    • John Butt said:
      Yes my NZ currency gains showing on Sharesight App are dissipating quickly. Meaning my overall portfolio has dropped below 0% gain since March.
      Still ahead of the market.

      1
      November 30, 2022
  3. Bart Yee said:
    So we have had in quick succession today – Fed signals smaller rate hike for December plus monitoring for moderating rate hike size or schedule, iPhone factory region Covid lockdown ended (for now), foreign exchange headwinds moderating in key markets, maybe, just maybe, Apple product demand remains high, robust, and persistent, plus many buyers may be remaining optimistic deliveries will still make Christmas or end of year deadlines. And our sense that any Apple consumer product orders remain orders to fulfill this or next quarter rather than being cancelled.

    Could we be seeing the makings of a beach ball / slingshot band tension about to release in December? No guarantees regarding Zhengzhou’s Covid progress or further disruptions but I remain cautiously optimistic that some stars are beginning to realign.

    7
    November 30, 2022
    • Robert Paul Leitao said:
      Bart: Following the recent market forecasts for 2023 from several of the major banking institutions such as BofA and JP Morgan and a few of the major non-bank-banking institutions such as Goldman Sachs and Morgan Stanley, I’m looking out to the latter half of 2023 and into 2024 for a market recovery. I believe earnings expectation for 2023 remain too high and while the Fed may reduce the size of upcoming interest rate increases, I’m not expecting a change in Fed policy until late 2023 or early 2024. I’ll take what comes. However, I expect much market volatility in 1H 2023. For patient investors with a 3-year to 5-year time horizon, there may be opportunities in today’s market from a long-term perspective. However, I remain quite cautious looking out at the next few to several months at this point in time.

      0
      November 30, 2022

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