Why the Fed is More Patient than the Markets

In this buzz: Powell’s war on inflation and Why it might take a bit time to be over; and more…

War on Inflation:
Investors, or at least traders and certainly the media, like things to happen quickly. It’s a much better headline to be able to declare inflation “dead” after the FOMC, slows the pace of its hikes than the publish, “Powell Needs Another Year Before Declaring War on Inflation Over.”

Unfortunately, that’s just not the way things work, at least not now.
❗With interest rates low since the credit crisis and dipping again during the pandemic, the fact is that most homeowners and corporations with fixed borrowing costs are less sensitive to short-term rate hikes than then have been in the past.

There are a great number of borrowers with lending costs at 3% or below who simply aren’t impacted by the recent hike in rates. While the same is certainly not true for new or potential borrowers, the implication is that the impact of Fed rate hikes may take longer than expected to work their magic.

Other inflation pressures:
Additionally, there are still other inflation pressures. Despite widespread and well publicized ① layoffs, companies are still ② struggling to hire in the post pandemic recovery. Sprinkle in ③ supply chain issues, ④ war in Ukraine and ⑤ U.S-Sino tensions and there are a number of reasons why the impact of Powell’s rate hike campaign can take longer than many would like.
💡Jerry Powell’s patient, we may have to be as well.

🧠 Box:
GDP Price Index: The index measures the prices of goods and services purchased by U.S. residents, regardless of where the goods and services were produced. It’s a major indicator of inflation in the U.S. economy.