Fed's Contradictory Signals and Future Implications: Final Thoughts | June 14, 2023

While the Federal Reserve's recent decisions and language raise some contradictions, it's clear there is some level of uncertainty regarding the economic climate and the effectiveness of rate hikes. This was evident in the recent press conference where a 'skip' and 'pause' were used interchangeably. There's also inconsistency in their use of the dot plot as a significant reference, while previously advising us not to focus too much on it. Amid high inflation, the decision to outline future hikes instead of an immediate one can be perplexing, but it might reflect their cautious approach.

Economic indicators present a mixed picture, with steady credit spreads, loosening financial conditions, a robust stock market, and recovering housing sector. Yet, the decision to increase the terminal rate in the future doesn't quite align with these positive indicators. It suggests a strategy of allowing inflation to grow stronger before deciding on more aggressive rate hikes. This could be a risky move, potentially leading to past mistakes being repeated and inflation spiraling out of control. The fact remains that there's no strong case for a hawkish pause, and the groundwork could be laid for a stronger economy and potential inflation return. #FED #FOMC #Inflation #MarketUpdate