Not Even a Pivot with a Small ‘P’
After four-straight 75 basis-point (bp, 1 bp = 0.01%) rate increases, the Federal Reserve downshifted and boosted its key rate, the fed funds rate, by 50 bp last week. But it didn't muddy its hard-hitting anti-inflation rhetoric.
Since 75 bp rate hikes are probably behind us, Fed Chief Powell took great pains to distance the Fed from the idea that it might be considering a policy shift.
Powell said rates are still not high enough. “We'll need to stay there (at a yet-to-be-determined peak) until we're really confident that inflation is coming down in a sustained way. And we think that will be some time.”
That wasn’t pivot language. It wasn’t pivot lite. It wasn’t even a pivot with a small ‘p.’
The continued tough stance came despite the second-straight monthly inflation reading that came in less than expected.
A day before the Fed’s decision, the Consumer Price Index rose 0.1% in November, the U.S. Bureau of Labor Statistics reported. Excluding food and energy, the core CPI rose 0.2%.
It’s welcome, and it’s encouraging, but, in the Fed’s eyes, two months isn’t exactly a convincing trend.
Moreover, the Fed lifted its end-of-2023 fed funds projection from 4.50 – 4.75% to 5.00 – 5.25%. It’s another upward drift that caught the attention of investors.
Take the projected level next year with a couple of grains of salt. At this time last year, the Fed expected a fed funds rate of 0.75 – 1.00% by the end of 2022. That’s quite a miss.
Nonetheless, the heavy lifting is possibly behind us. Still, the Fed made sure it balanced a smaller rate hike with a stern message, lest short-term traders get too complacent, and the public loses more faith in the Fed’s commitment to price stability.
Short-term traders, who have made a series of bets this year that the Fed would pivot, were once again disappointed.
If you have any questions or would like to discuss any other matters, please let me know.
Clark S. Bellin, CIMA®, CPWA®, CEPA
President & Financial Advisor, Bellwether Wealth
402-476-8844 cbellin@bellww.com
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