Janus Henderson: Has monetary policy reached an inflection point?

Janus Henderson: Has monetary policy reached an inflection point?

13 april 2023

Monetair beleid
Rente (04) inflatie

Jason England, Global Bonds Portfolio Manager at Janus Henderson, comments on the release of the FOMC minutes.

Has monetary policy reached an inflection point? Whether it was due to the banking sector stresses or the fact that the Fed had already done an unprecedented number of aggressive hikes over the past year, and was nearing the end of this campaign, the FOMC minutes finally showed some signs of a difference of opinions on the path forward for monetary policy.

Even though all participants agreed to raise rates by 25bps at the March meeting, there were “several participants” that considered whether it would be appropriate to hold rates at this meeting and “some participants” considered a 50bps rate hike given persistently high inflation and the strength of recent economic data. In the end, the debate between price stability (inflation still well above the Fed longer-run target) and financial stability (banking sector stresses), the Fed’s continued resolve to bring inflation back to their 2% target won out at this meeting.

The Fed did acknowledge that the banking sector stresses will likely lead to some tightening of credit conditions, but it is uncertain to what extent. So because of that, along with lag effects to hikes already done over the past year, the Fed will now be even more data-dependent at each meeting. If additional policy firming is needed, they will do more hikes, but it appears like they are much closer to a pause than we thought prior to the bank turmoil in early March.

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