Loading ...The truth of the matter is that the US economy is doing well. In fact, beneath the hood, it might even be booming.
We are so far away from the Federal Reserve slowing down the rate of hikes. The economy is doing well. Stocks are on their highs. Unemployment is hitting new lows. Inflation is ticking at cycle highs. If anything, I expect the Federal Reserve to increase the pace of tightenings – not the other way round.
I am not sure what this will mean to asset prices, but be careful in assuming the Fed is on financial markets’ side…
Powell will not reduce this pace because the 5-30 spread is hitting new lows. Nor will he care about the effective Fed Funds spread over IOER. And finally, the Federal Reserve has a mandate to set policy for the USA and will not alter course because of emerging market wobbles.
Additionally, there have been stories indicating the Federal Reserve is considering holding press conferences every meeting as opposed to every second one. Although there are plenty of good reasons to change this policy, I believe that Powell is worried he will have to raise rates at a quicker pace in the future.
Let’s face it, on the metrics that matter to the Federal Reserve (employment and inflation), the signals are all pointing to an economy that needs higher rates.
Thanks for reading,
Kevin Muir
the MacroTourist