The Federal Reserves Confused Message
It depends on which Federal Reserve Board of Governor you listen to; some say they are still going to raise rates, and some say we are done. While Chairman Powell heads the Federal Reserve Board, each governor has a vote that leads to interest rate decisions.
Also, remember that the Fed tries to lower interest rates using language and words. They may talk about possibly raising rates as a way of adjusting interest rates based on the expectations from the market using words.
Economists and market strategists (including me!) do their best to try to decipher the direction of interest rates and inflation. From our perspective, we look at the data and not so much what Federal Reserve says. Words are cheap; data is meaningful.
It is our view the Fed will likely raise interest rates one more time this year. At that point, we believe they will wait and see whether the economy is dipping into a recession. As I've shared earlier, our base case expectation is the economy will enter a shallow recession in the third quarter of 2023.
“Minneapolis Federal Reserve President Neel Kashkari on Monday said he’s open to holding off on another interest rate hike next month, but cautioned against reading too much into a pause.
“Right now it’s a close call either way, versus raising another time in June or skipping,” the central bank official said on CNBC’s “Squawk Box.” “Some of my colleagues have talked about skipping. Important to me is not signaling that we’re done. If we did, if we were to skip in June, that does not mean we’re done with our tightening cycle. It means to me we’re getting more information.”
Markets currently are putting about an 83% probability that the rate-setting Federal Open Market Committee holds off on what would be an 11th consecutive increase when it convenes June 13-14, according to the CME Group’s FedWatch tracker of futures prices. Kashkari is a voting member on the FOMC this year.
Beyond that, traders see the Fed likely cutting about half a percentage point off rates before the end of the year, a nod toward inflation moving lower and the economy slowing.
Central bank officials have been unified in saying they don’t expect cuts this year. Kashkari said that if inflation doesn’t come down, he would be in favor of increasing rates again.”