Last week, the Federal Reserve delivered a 75-basis point rate hike, but Fed Chair Jerome Powell failed to deliver the more doveish rhetoric that many expected. The messaging did not indicate much softening in the stance on the future trajectory of rate hikes, despite an apparent “soft pivot” the week before.
In his podcast, Peter broke down Powell’s messaging and pointed out a number of very scary admissions that came out of the Fed meeting.
Peter said the Fed did do a soft pivot but was able to back off when the bond market stabilized.
I believe the Fed was forced into making that pivot because it stood on the precipice of a bond market crash, which was in the process of happening. And I think the only way the Fed was able to stop that slow-motion crash from playing out accelerating was by throwing a bone to the markets and indicating through the Wall Street Journal that there was going to be some type of statement that was going to go along with the rate hike that would indicate that maybe there was going to be a pause in the pace, a slowdown in the pace, that the Fed was going to take a step back and reflect and assess, and maybe acknowledge the progress that had been made without indicating complete victory, but at least acknowledging that victory was at least in sight and that the Fed could take a more cautious approach going forward. … Something to that effect was expected.”
However, the Fed didn’t deliver anything close to that.
Initially, the markets thought the Fed was going more doveish. The statement released by the FOMC left some wiggle room for a slowdown in hiking or even a pause with language about monetary policy “lags” and “cumulative” effects.
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