Hopes that the central bank would pivot away from its efforts to raise rates are dashed.
Federal Reserve Chairman Jerome Powell warned Wednesday that “its’ very premature” to think about pausing rate hikes.
The comments came after the Federal Reserve delivered its fourth major rate hike in succession, amid one of the most aggressive tightening cycles since the Paul Volcker era of the early 1980s.
“It’s very premature, in my view, to think about or to be talking about pausing our rate hikes,” Powell said. “We have a ways to go.”
The Fed lifted its Fed Funds rate by 75 basis points, to a range of 3.75% to 4%, the highest since 2008, and said more near-term rate moves would be needed in order to combat the fastest inflation in nearly four decades. The vote was unanimous, the Fed said.
Stocks finished sharply lower Wednesday as investors reacted to the rate hike.
“With some uncertainty remaining in the path of inflation going forward, Powell and committee are trying to balance the optionality of further tightening against the work that has already been done.,” said Charlie Ripley, Senior Investment Strategist for Allianz Investment Management.
“This does not change the fact that they want to implement a policy plan that is restrictive enough to slow the economy,” he said.
Monitoring the incoming data over the coming months will ultimately determine how high policy rates have to go, Ripley said, “but a slowdown in the pace of tightening seems appropriate at this juncture.”
The committee noted that future rate decisions will take into account their ‘cumulative’ impact on the broader domestic economy of higher rates so far.
“At this point in the hiking cycle, it appears as if the Fed is getting closer to moving towards an observatory role as they assess the impacts of the policy tightening that has been completed,” Ripley said.
“The Fed is very concerned that their rate hikes are hurting the economy unnecessarily and are facing increasingly vocal critics who prefer to let inflation run its course rather than take the painful medicine that is required to cure it,” said Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance.
