To The Moon

The Federal Reserve, in a well-telegraphed move, raised its short-term borrowing rate by 0.75 percentage point to a target range of 3.75%-4%, the highest level since January 2008. The central bank’s new statement hinted at a potential change in how it will approach monetary policy to bring down inflation. However, stocks fell as Fed Chair Jerome Powell dismissed the idea that the Fed may be pausing soon though he said he expects a discussion at the next meeting or two about slowing the pace of tightening. Still, Powell reiterated that there may come a time to slow the pace of rate increases. Economists are hoping this is the much talked about “step-down” in policy that could see a rate increase of half a point at the December meeting and then a few smaller hikes in 2023. Stocks initially rose following the announcement, but turned negative during Chairman Jerome Powell’s news conference as the market tried to gauge whether the Fed thinks it can implement a less restrictive policy that would include a slower pace of rate hikes to achieve its inflation goals. On balance, Powell dismissed the idea that the Fed may be pausing soon though he said he expects a discussion at the next meeting or two about slowing the pace of tightening. He also reiterated that it may take resolve and patience to get inflation down.

“We still have some ways to go and incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected,” he said.

Still, Powell repeated the idea that there may come a time to slow the pace of rate increases. He has said this at recent news conferences

“So that time is coming, and it may come as soon as the next meeting or the one after that. No decision has been made,” he said.