Powell sounded dovish yesterday, but also opened the door for a potential unconstructive feedback loop by allowing market conditions to dictate the policy rates. If market rates drop and equities perform, the FOMC will have to act in December.
Why should Powell abort the planned hike from the dot plot when everything is improving relative to the base case in the US economy? We are not writing off a Q1-Q2 recession, but the soft/hard evidence is not there for the FOMC members.
Regional Banks continue to suffer, and PacWest looks very vulnerable at this juncture. Will the Fed deliver a hawkish or a dovish pause (after the 25bp hike)? That’s the question now.
With the banking turmoil leaving the headlines (for now), we turn our attention towards the main themes in the broader macro landscape. What’s going on with inflation? What will the Fed do? Is oil turning bullish? And what about Japan? As always we keep you updated on the 5 biggest themes of the week. Enjoy!
When Fed Chair Powell goes on stage tonight we of course stay on the line for live coverage of the interest rate decision and the following speech. Get prepared and follow the meeting with us, as well as getting the best takeaways here on our live blog!
The FOMC will likely decide to raise the Fed Funds target range by 25bps and regret it soon thereafter on Wednesday. Everything but the banking sector stress screams higher interest rates, why the Fed will attempt to regain control of the narrative.