Observations March 14, 2023
- Powell’s remarks at the FOMC conference are telling investors the current environment does not warrant an immediate need to pause, although a more cautious stance is necessary.
- Powell used phrases like “some additional firming may be necessary” and “the path for policy will adjust as appropriate,” which were clarified in the questions segment of the meeting to mean that further rate hikes are possible if the effect of the recent bank failures is “modest” on inflation.
- With bearish price action in the broad indices through the close, it seems the market was pricing in a 25-bps hike accompanied by a firm statement against further hawkish policy.
- For now, a resumption of inflationary data before further signs of deterioration will be bearish for risk assets. Moreover, liquidity issues in the absence of Fed intervention will also be bearish.
- I would be surprised to get to the next meeting without additional liquidity issues in the broad economy emerging first.
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