December 5, 2022

Fed offers more rate hike clues

3 min read

New York
CNN Business

Americans are gearing up for food, family and football on Thursday, but investors held off until Wednesday afternoon before giving thanks.

That’s because the Federal Reserve released the minutes of its latest meeting at 2 p.m. ET on Wednesday, which provided more clues about the central bank’s thinking about inflation and interest rate hikes.

At the Fed meeting on November 2 The rate was increased by three-quarters of a percent. – This is the fourth consecutive increase of such magnitude. But Fed Chair Jerome Powell suggested at a press conference that the Fed may soon begin to reduce the pace of hikes.

Minutes from that meeting show that several other Fed policymakers agree with Powell’s assessment.

“Several participants observed that, once monetary policy reached a stance that was sufficiently restrictive to achieve the Committee’s goals, it would be appropriate to increase the target range for the federal funds rate. Speed ​​should be reduced,” Fed said. minutes

“A substantial majority of participants decided that the prospect of slowing the pace of growth soon would be appropriate,” the Fed added.

Stocks, which were relatively flat and rolling before the minutes came out, popped after their release. The Dow ended the day up 95 points, or 0.3 percent. The S&P 500 gained 0.6% and the Nasdaq gained 1%.

Other feed members, esp Vice Chair Lyle Brainard, had also hinted at a slower pace of growth in recent speeches. Yet there are Ambiguous signal from another Fed officialswho have been stressing that inflation is not going away and must be brought under control.

To that end, the Fed said in the minutes that inflation is “stubbornly high” and “more persistent than expected.”

With that in mind, traders are now pricing in a more than 75 percent chance that the Fed will raise rates by just half a point at its Dec. 14 meeting. According to futures contracts on CME. That’s higher than the 52% odds for a half-point increase a month ago, but less than the 85% chance of a half-point increase that was priced in just last week.

A recent batch of inflation reports suggests that the pace of rapid price increases is finally starting to slow to more manageable levels. The job market also remains relatively healthy, albeit the most recent Increase in unemployment claims data a week ago.

But as long as the labor market remains stable and inflationary pressures continue to ease, the Fed will likely scale back the intensity of its rate hikes.

Some experts are concerned that if the Fed goes too far with rates, the hike could ultimately slow the economy too much and potentially lead to higher unemployment, job losses and even Can lead to recession.

The Fed rate hike has had a clear impact. The housing markethelping with rising mortgage rates. Home sales decline

Still, confidence is growing on Wall Street that the Fed may be able to pull off a so-called soft landing. gave Dow 14% increase in October His best month since January 1976. The Dow is up another 4.5 percent in November and is now down just 6 percent this year.

gave S&P 500 And Nasdaq have also rebounded significantly since October, but both were down more sharply for the year than the broader market index Dow.

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