The US Federal Reserve early today slowed the pace of rate hikes for the second consecutive meeting from 50bp to 25bp, moving the Fed funds rate target range up to 4.50-4.75%.
Jonathan Duensing, Head of Fixed Income, US, at Amundi, Europe’s largest asset manager says: “We remain cautious and anticipate market volatility in the medium term as investors discount upcoming labor, growth and inflation data and the Fed’s policy reaction function to the data.”
He also made the following comments:
“FOMC Statement: modest changes to the text. A nod to the recent easing in inflation but reiterated that it remains elevated. The Committee maintained the phrase “ongoing increases” to make it clear it is not done tightening policy. However, injecting the phrase “extent of future increases” signals the 25bp rate hike is a “return to normal” in the pace of hikes going forward.
Also read: Australian Economic View – February 2023
“Press Conference: Chair Powell’s tone during the press conference was not as hawkish as the FOMC Statement and the prepared opening comments. As expected, Powell reinforced a full commitment to lowering inflation and indicated that the Fed may need to hike a couple of times to get policy to a level they regard as appropriately restrictive (consistent with the December SEP). He did not push back on recent easing in financial conditions and noted a focus on the tightening of financial conditions over the longer-term. Powell also reiterated multiple times his optimistic view on the “soft landing” outcome.
“Market reaction: The market initially sold off following the release of the statement as the no change in the previous guidance was interpreted as hawkish but rallied rather strongly throughout the press conference as the Fed Chair expressed optimism for a “soft landing” and did not push back on near-term easing in financial conditions.”
