A less aggressive Fed signals that its job is not done yet

In Short

As expected, the Fed shifted to 25bps rate rises, but was very careful to signal that monetary tightening is not finished. The press release was little changed from December, but acknowledged the easing of inflation that allows the FOMC to focus on the extent of the further tightening, rather than its pace. Broadly this means that the FOMC thinks that the view expressed in the December projections does not change: two more rate hikes are therefore appropriate.

Highlights:

  • 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. 

 

Download the publication below:

Market Commentary: A less aggressive Fed signals that its job is not done yet
Picture

© Generali Investments, all rights reserved. This website is provided by Generali Investments Holding S.p.A. as the holding company of the main asset management companies of the Generali Group having, directly or indirectly, the majority shareholding in the companies listed below (hereinafter jointly, “Generali Investments”). This website may contain information related to the activity of the following companies: Generali Asset Management S.p.A. Società di gestione del risparmio, Infranity, Sycomore Asset Management, Aperture Investors LLC (including Aperture Investors UK Ltd), Plenisfer Investments S.p.A. Società di gestione del risparmio, Lumyna Investments Limited, Sosteneo S.p.A. Società di gestione del risparmio, Generali Real Estate S.p.A. Società di gestione del risparmio, Conning* and among its subsidiaries Global Evolution Asset Management A/S - including Global Evolution USA, LLC and Global Evolution Fund Management Singapore Pte. Ltd - Octagon Credit Investors, LLC, Pearlmark Real Estate, LLC as well as Generali Investments CEE. *Includes Conning, Inc., Conning Asset Management Limited, Conning Asia Pacific Limited, Conning Investment Products, Inc., Goodwin Capital Advisers, Inc. (collectively, “Conning”).