Hawaii Six O - Gary Wagner
Fed announces expected ¼% rate hike - and his comments were classic Powell
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
Today the Federal Reserve concluded its July FOMC meeting leaving only three remaining meetings this year. As expected, the Federal Reserve raised rates by ¼% taking its terminal benchmark rate to between 5 ¼% and 5 ½%, no surprise there. This took the fed funds rate (which is used to set the prime rate) to its highest level since 2001 or in 22 years.
The vast majority of Chairman Powell's statements were to be expected and within line as to how he delivered his message and what he conveys to the American public.
"We remain committed to bringing inflation back to our 2% goal," Chair Jerome Powell said in a press conference after the Fed rate hike. "No one should doubt that."
Another predictable statement was that "The Fed would assess additional information on inflation, employment, and economic growth before determining its next step." As expected, he stressed that the Fed would remain vigilant and keep its options open.
However, what market participants, economists, and analysts were hoping to gain new understanding and insight was left ambiguous with no clear answer thereby revealing absolutely nothing that investors had hoped to gain insight and learn more about. First and foremost; is the Fed getting close to the conclusion of the rate hike cycle?
With the skill and finesse of Charles Blondin the self-proclaimed King of the high wire who crossed Niagara Falls in a tight rope 2 inches thick and 2200 feet long between two cranes raised 13 feet. Powell said, "I would say it is possible we could raise [rates] at the September meeting if the data warranted, and it possible we would choose to hold steady at that meeting."
During an event in Dublin in 1860 the rope on which he was walking broke and two workers were killed although Blondin was not injured. The moral of the story was that trying to thread the needle to such a great degree has consequences. The analogy I see here is that although Powell’s statements have left him unscathed at some point, they could be extremely detrimental to others.
However, he did clarify information that he had already revealed such as the fact that the Federal Reserve will not be cutting rates this year. He acknowledged that nominal wage growth has shown some signs of easing the process of getting inflation to 2% but it still has a long way to go. He said that high inflation poses significant hardships, a fact that is common knowledge and not lost to most middle-class Americans. He vowed that they would continue to make their decisions meeting by meeting. And in an attempt to give hope to the American people currently suffering from inflation, he stated that the "inflation report was a little better than expected".
Many analysts had hoped that the recent reduction in inflation would create momentum that would cause the Federal Reserve to ease off its highly restrictive monetary policy. More importantly, many economists, analysts, and investors had hoped that the recent economic data would convince central bankers that inflation is coming down to a point that they can address and that they can hold rates steady at some point. But that is not something we have learned to expect from the press conference by Captain Obvious (Powell) speaking and in essence not saying anything that was not common knowledge already.
Considering that the economy in part has remained resilient and according to Powell we have for the most part alleviated real fears of a recession this year it shows that economic activity is expanding at a moderate pace which is a huge move from what they conveyed at the FOMC meeting in June.
Powell can convey positive news and insight only to remove it in the same sentence. During the press conference, Chairman Powell said that when the Fed decides it does not need to raise rates further, he made it clear that the bank would hold rates at a restrictive level to allow inflation to continue to gradually come down. The interpretation by economists is that this statement in essence conveys that most likely the public will not see any rate reductions until next spring.
The financial markets were mixed with a fractional gain in the Dow and fractional declines in the S&P 500 and NASDAQ composite. Gold futures gained $9.80 in the most active August contract and is fixed at $1973.60. The August contract will conclude in 4 days and the new active contract will move to December 2023 which gained $10 and is fixed at $2012.80. The dollar gained 0.32% and the index is currently fixed at 100.775. No real tremendous gains or losses resulted from today’s Federal Reserve meeting.
The most meaningful way to end today’s article is to quote Chairman Powell with one of his greatest reveals from today’s press conference, "it’s not an environment where we want to provide a lot of forward guidance". Chairman Powell has not lost his silver tongue and articulate way of communicating nothing.
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Wishing you as always good trading,