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Jamie McGiver
Florida ORLANDO, Calif. (Reuters) – If the Federal Reserve “skips” raising interest rates next week only to tighten monetary policy again a month from now, that’s how some in the U.S. central bank say markets are pricing in what will be the shortest rate hike in modern times. pause.
Since Alan Greenspan started his
and the Central Bank is at 20s, it never paused for a hike just for one session.
It raised rates at rotating meetings, most recently at
and200, and in Burned in for six months. But having one or even two meeting breaks towards the end of the cycle would be unique. The question is, why bother?
When you think that the US unemployment rate is close to
this is especially important Inflation remains well above target and is unlikely to return to target until 400, according to the median forecast of Fed policymakers themselves. Similarly, if you are right about
Be wary of “long and variable” lags With just over a year of basis point hikes – the most aggressive tightening in four decades – the end of the cycle is just around the corner, why skip a meeting?
However, the one-time suspension is not unique globally.
The RBA appears to have implemented a meeting “skip”, but that may have been more by accident than by design. It surprised financial markets with rate hikes last month and this week.
To give policy makers everywhere a big slack, the post-pandemic economic and inflation landscape is not what it used to be. The usefulness of the old forecasting model was patchy at best, so it considered policy responses and their validity to be unique as well.
suggested that pausing one or even two rate hikes could be a communication tactic to buy policymakers more time to judge next steps What to do – but also control the market by betting on the end of the cycle.
But there are risks.
John Silvia, founder of Dynamic Economic Strategy, agrees that it may have merit as a decision-making strategy, but makes little sense from an economic standpoint – Economic Not in recession, inflation remains too high.
“So why are you skipping this meeting? And then you’re skipping July and September? You have to ask why you’re doing that, and then it It becomes a question of credibility – you say your inflation target is 2 percent but you’re not chasing 2 percent,” Silvia said.
The middle finger of the wind Timeline, almost two months of incoming data after July Fed Chairman Jerome Powell and colleagues at Decisions assessed before next decision on September 17. .
That was a long time. Another possibility left in July – Basis rate hike in two months to prevent financial conditions from loosening too much.
The Fed wants policy to be restrictive and financial markets move accordingly.
This idea of pausing and then tightening again was first suggested by Dallas Fed President Lorie Logan on J.January, but after the Fed raised its target range for fed funds To
Fired by Powell two weeks later The base point is 4.%-4.00%.
Philadelphia Fed President Patrick Harker and Fed Governors Christopher Waller and Philip Jefferson have introduced “skip” and “skip” into the lexicon of Fed watchers in recent weeks. Until then, the pause is generally seen as laying the groundwork for rate cuts, rather than a resumption of rate hikes.
The Fed’s shortest interruption in modern times is the second half of six months 52. However, headline and core annual inflation, as measured by the Consumer Price Index (CPI) and the Personal Consumption Expenditure (PCE) price index, were mostly below 2% at the time, and the unemployment rate was between 5.0% and 5.2%.
The Fed hopes it can convince the market that the “jump” is not a pivot point, which some may see as a logical progression to a gradual slowdown in policy tightening NEXT PHASE – Rate hikes since November have gone from bps to 00 bps to base points.
“Absentee” meetings are rare, but perhaps appropriate in a post-COVID era of extremely low visibility.
Wrightson ICAP (LON: 400NXGN). “The Fed has expressed misgivings about locking itself into beat mode at various times, and they certainly haven’t been in beat mode during this cycle.”
(The opinions expressed are those of the author, who is a columnist for Reuters.) 1000
(Author: Jamie McGeever; Editor: Paul Simao)
