Just yesterday, we discussed how the Fed has given little to no indication that they are going to shy away from large rate increases. Even then, there was still hope that the picture would get a lot cleaner on Thursday, considering Chair Powell himself had a few words to say. The Cato Institute held their Annual Monetary Conference yesterday, and Powell was one of the speakers for the think-tank’s meeting.
Powell was not afraid to speak his mind, and he might’ve given investors the answers that they were expecting. The consensus is that rates will increase by 0.75%, and Powell’s tone at the conference all but confirmed this will be the case. Direct quotes include “we need to act now forthrightly, strongly, as we have been doing” which puts the writing on the wall. According to many analysts and economists, Powell would’ve hinted at a lower rate increase if that was in plan, and this was reflected in interest rate futures as they rose modestly after the speech. Powell cited empirics from the 1970s and 1980s when inflation was sky-high as the Fed quickly solved the problem to reduce negative public sentiment. He said that he doesn’t want the public to expect inflation to rise, and instead look for it to decrease as that will help ease the issue in its own way. One thing he acknowledged is that it’ll be hard to gauge the economy in a medium-term lens due to the rise in interest rates, and it truly feels like the Fed is willing to let the economy tip over to fix this problem that some argue was caused by their inaction.
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.