June 27, 2022

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Slouching Toward Inflation Reality – WSJ

2 min read

Federal Reserve Chair Jerome Powell speaks about interest rates, the economy and monetary policy actions at the Federal Reserve Building, Washington, D.C., June 15.


olivier douliery/Agence France-Presse/Getty Images

The media and market chatter is that the Federal Reserve finally took out the anti-inflation bazooka with a 75-point rate increase on Wednesday, and there’s no doubt Chairman

Jerome Powell

sounded hawkish rhetorical notes. But the overall message still looked more like a central bank slouching toward inflation reality, but not yet convinced it has to do all that much to get prices under control.

The 75-point increase at a single meeting was supposed to signal shock and awe, and it was the Fed’s first move of that magnitude since 1994. Mr. Powell also said an increase of between 50 and 75 basis points is likely at its next meeting in July.

But if you look at the Fed’s median forecast, the fed-funds interest rate is expected to rise only to 3.4% by the end of this year. That means increases will taper off through the rest of the year, and the Fed predicts a peak of only 3.8% in 2023. The Fed is front-loading its rate increases, but it’s still not anticipating that it has to go all that high to beat inflation.

No wonder bond yields retreated Wednesday even as equities rallied. Markets read the Fed’s median forecast on Wednesday as less hawkish than Monday’s Fed leak to the press about the likely 75-point increase.

Will this…

2022-06-15 19:23:00

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