Did you think the Fed may soon delay rate increases? You Were Wrong

Markets overreacted optimistically to Chairman Powell’s earlier remarks.

Many people had begun to think that the Federal Reserve might start to scale down the interest rate rises as a result of some easing in the producer price index and inflation. That news would be welcomed by the CRE sector. However, it’s unlikely to arrive. Certainly not this year.

The minutes from the Fed’s July meeting were made public. Although it is a two-week in the past mirror, it is close enough to show how the Central Bank is viewing the economy and its goals. It appears that a small improvement in some areas of the economy is insufficient for a significant shift.

They stated that “recent indicators of spending and production have softened. Nonetheless, job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.”
“In assessing the appropriate stance of monetary policy, the [Federal Open Market] Committee will continue to monitor the implications of incoming information for the economic outlook,” they continued. “The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.”
It’s a lengthy way of cautioning markets against getting their hopes up too fast.
Quincy Krosby, chief global strategist for LPL Finance, noted in an email that, “The Fed minutes stressed that the campaign to curtail inflation [will continue] until the Fed believes inflation has fallen enough to reach levels commensurate with price stability, This suggests that the market’s optimistic reaction to Chairman Powell’s July press conference was premature. That a parade of Fed speakers came out with a nearly orchestrated response following the July Fed meeting warning market participants that the Fed is by no means close to easing its campaign was dismissed by the market.”
Bill Adams, chief economist at Comerica Bank, added in a separate note, “It’s a no-brainer to expect rate hikes to continue in the near term. As the Fed’s July monetary policy statement said, the FOMC “anticipates that ongoing increases in the target range will be appropriate,” and that still holds, even with WTI back under $90 a barrel. Comerica forecasts a half percentage point increase in the fed funds rate at the Fed’s next meeting in September, but it’s a close call between that and another hike of three-quarters of a percent.”
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