A less aggressive Fed signals that its job is not done yet
- The FOMC members voted unanimously for a 25bps rate rise, as expected. The discussion on policy shifted from the speed of monetary tightening to its extent: the peak rate is near and two further 25bps increases remain the base case.
- Disinflation has started driven mostly by goods. Shelter will follow, in line with the moderation in house prices increase, but a significant part of core services inflation shows no signs of abating. Lowering it requires bringing back into balance a still too hot labour market.
- The Fed, though, is confident that this need not entail a sharp rise in unemployment nor a recession. Therefore, the FOMC is neither considering a pause in rate hikes nor expects to cut this year The recent loosening in financial condition is not yet a cause for concern, as it must be weighed against the sharp tightening of the past year.
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