Please see the below article from EPIC Investment Partners providing their commentary on the FOMC Hold Rates/The Old Lady’s Table Mountain. Received this morning 02/11/2023.
The FOMC held interest rates at the 22-year high for the second straight meeting, albeit with Fed Chair Powell keeping the door slightly ajar to the possibility of additional tightening. Overall, there were very few changes to the accompanying statement to that given in September. All in all, Powell continued to acknowledge the downshift in inflation, whilst warning it was not “yet definitive enough”, adding that while the labour market is “rebalancing” it remains tight. He also reiterated the strength in GDP growth, but also acknowledged that “many forecasters are forecasting it will be slow”.
In the Q&A after the release, Powell reiterated that the Fed remains on guard against inflation threats. However, he didn’t specifically suggest that a resumption of hiking is imminent. In response to a question about whether financial conditions are sufficiently restrictive to get inflation to 2%, Powell said: “We haven’t made any decisions about future meetings. We have not made a determination and we are not confident at this time we have reached such a stance. We are not confident that we haven’t or we have. That is the way we are going to be going into these future meetings, is to be, you know, determining the extent of additional further policy tightening that may be appropriate to return inflation to 2%.”
With regards to the tight labour market and wages, Powell noted: “What we have seen is a very positive rebalancing of supply and demand, partly through just much more supply coming online”. “If you look at the broad range of wages, wage increases have really come down significantly over the course of the last 18 months, to a level where they are substantially closer to that level that would be consistent with 2% inflation over time. We can proceed carefully at this time”, Powell added.
Eyes now turn to the Old Lady at midday as she looks set to hold rates on the “Table Mountain” strategy as evidence continues to mount that the economy, labour market and inflation are weakening. At the time of writing, money markets are pricing a less than 5% chance of the BoE hiking rates.
The Table Mountain term comes from BoE Chief Economist Huw Pill, speaking in Cape Town recently, where he stated he supports the idea of a lower peak for interest rates and holding them there for longer to contain inflation, hence the Table Mountain approach.
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Alex Clare
02/11/2023