Investors were on tenterhooks going into today’s Fed interest rate decision. Markets were up sharply the past few weeks – expecting Powell to remain dovish. However two consecutive months of hotter-than-expected inflation prints had some thinking twice. Turns out Powell is a dove. However, he delivered more dovish ‘fuel’ for stocks that what many expected.
Inflation
Actionable market insights delivered to your inbox weekly
Will Powell Heed Volcker’s Wisdom?
Next week Fed Chair Jay Powell will deliver the FOMC’s March statement on monetary policy. Interest rates are not expected to change – however his sentiment might. When we last heard from Powell – he was dovish – igniting a rally in risk assets. However, with inflation heating up and a tight job market – Powell may perform another pivot. Markets expect three rate cuts this year – those expectations might be dialed back to just two.
Markets Expect only 3 Rate Cuts this Year – as Services Inflation Jumps
Expectations for rate cuts this year are coming down. For e.g., one month ago the market saw at least six rate cuts before the end of the year (possibly seven). I challenged that assumption – thinking three was more likely (not six). Following news of a hotter than expected Producer Price Inflation (PPI) print for January – those expectations are now down to just three cuts before year’s end. That’s more aligned to the Fed’s intended path.