Watching the the downward trending reactions of the market to the multiple interest rate hikes this year, it can be easy to wonder if the Feds have a plan that will actually benefit the economy.
After the September Fed meeting, Powell said interest rates may be heading higher for longer than anticipated and that “no one knows whether this process will lead to a recession, or if so, how significant that recession will be.”
In the chart below, we see that traders expect short-term rates to peak next year and perhaps trend lower by the end of 2023, which could mean that Wall Street is prepared to see the Fed tame inflation.
Traditionally, I’ve been a little cautious when people say, “it’s different this time.” After all, the past few years have seen more financial “firsts” than most.
But despite that skepticism, this year saw five interest rate increases in seven months — making it the quickest tightening cycle in modern history.
And with two more rate increases expected in November and December of this year, it seems clear that Fed Chair Jerome Powell is determined to keep adjusting rates until inflation is on track to hit the Fed’s target.
The Fed knows that few financial events can be as devastating as high inflation over time – especially for those living on a fixed income. So the Fed is comfortable with some short-term economic uncertainty in pursuit of its long-term goal of price stability.
We know this year has had its ups and downs. Just when it appears to have turned a corner, something else happens, and the markets are under pressure again.
I’m optimistic that the Fed has a plan, and am looking forward to the day when Fed Chair Powell has good news to share.