US Fed's pyrrhic victory over inflation after policy rate hiked by 75 bps

Powell cannot afford to take his eyes off the prize - to get inflation down

The US Federal Reserve (Fed) lifted the policy rates by 75 basis points and strongly committed to bring down inflation to its 2 per cent target. Equity markets globally rallied on optimism that the Fed will slow its pace of monetary tightening. Experts believe as the US central bank is not yet done with its war against inflation, stocks are still not completely out of the woods and volatility will soon rear its ugly head.

 

A divided house on market optimism:

 

“While another unusually large increase could be appropriate at our next meeting, that is a decision that will depend on the data. The labour market is extremely tight, and inflation is much too high”

JEROME POWELL

Chair, US Federal Reserve

 

“Powell does not seem to be ruling out 100-/75-basis point hikes in September. It’s data dependent”

JONATHAN MILLAR

Economist, Barclays

 

“We do feel the hikes are going to slow from these levels”

LAURA FITZSIMMONS

Executive director-macro sales, JPMorgan Australia

 

“As the tug-of-war between inflation and recession fears plays out in the second half of the year, we expect to see highly volatile markets”

RICHARD FLYNN

Managing director, Charles Schwab UK

 

“The odds of a recession are 50:50. The Fed’s tools are power tools. They’re not precision tools”

LOU CRANDALL

Chief economist, Wrightson ICAP LLC

 

“Markets chose to hear that the ‘Fed put’ is alive and well, and it fuelled a rally in both equities and bond yields. I think this just sets the stage for a correction, and more volatility ahead”

SONAL DESAI

Chief investment officer, Franklin Templeton Fixed Income

 

“The Fed is nowhere close to declaring victory over inflation”

ANNA WONG

Chief US economist, Bloomberg

 

“The market is anchored to the playbook of the last two recessions. The world is different now — inflation is a lot higher”

DEREK TANG

Economist, LH Meyer

 

“The Fed isn’t going to take its eyes off the prize, which is to get inflation down. A growth slowdown, or even a mild recession, isn’t enough to get them to pivot on restrictive policy”

OMAIR SHARIF

President, Inflation Insights