BlackRock: Fed to stop rate hikes after next meeting

BlackRock: Fed to stop rate hikes after next meeting

23 maart 2023

Rente Fed
Inflatie (05) rente

Rick Rieder, CIO Global Fixed Income at BlackRock, comments on the Fed's most recent interest rate hike.

Yesterday the FOMC attempted to thread a tricky policy needle. It did so by raising its policy rate by 25 basis points, but also committing to keeping liquidity in the system (and, in fact, the Fed has increased its balance sheet by $300 billion so far in March) and leaving its estimate of the year-end policy rate unchanged at 5.1%.

Additionally, Chair Powell also suggested that the Fed could pause rate hikes, as we are moving closer to the end of the hiking cycle (in our view, given recent events, the terminal funds rate will likely reside around 5.25%), and they’re likely to reach that point at the next meeting.

There have been some clear changes in direction in monetary policy emphasis this year: at the February FOMC meeting we saw a recognition of some disinflationary influences, a reversal in the Humphrey Hawkins testimony, which emphasized more intransigent inflation that needed to be addressed, and now a recognition that the economy will slow from here, somewhat related to stresses in the financial system.

The Summary of Economic Projections has 2023 growth of 0.4%, which would suggest negative growth from here, given the run rate strength of today’s economy. In addition, the 2023 unemployment projection of 4.5% is well above today’s prevailing 3.6%, suggesting a tangible deterioration in employment conditions as the year wears on.

Plus, the new insertion into the FOMC statement of 'recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation. The extent of these effects is uncertain,' which all suggest a more dovish reaction function from yesterday’s series of FOMC moves.

There is a clear recognition that it may be time to pause and let these restrictive rates drive their anticipated long and variable lagged-effects into the system, but long and variable (over the past two weeks) has felt like rapid and harsh. So, as we and many others have stated, the Fed’s job yesterday was tough, and it will likely remain so for many months to come.

Still, threading the needle isn’t impossible and can be executed upon with some further policy help to maintain financial stability and keep the economy, which faces an inevitable slowdown, from sliding into a deep recession.

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