One of the main takeaways from Fed Chairman Jerome Powell’s press conference and the central bank’s policy statement Wednesday is the growing possibility that the rate-hiking cycle is already over, economists said Wednesday.
“The Fed’s latest policy statement and Chair Powell’s opening comments to his November press conference open the door for the Fed to end the current rate-hike cycle with interest rates at their current level, rather than hiking more,” said Bill Adams, chief economist for Comerica Bank in Dallas.
Read: Fed maintains freeze on interest rates
Adams noted that Powell slightly altered the Fed’s guidance in his opening remarks.
In its policy statement, the Fed said it will consider many factors when “determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time.”
When he read the guidance at the start of the press conference, Powell added the Fed was also considering “how long policy will remain restrictive.”
“Another way to describe assessing how long policy will remain restrictive is to decide when to make policy less restrictive — that is, rate cuts,” Adams said, in an emailed comment.
Adams noted that later Powell said the Fed considered rate cuts at their current meeting, “but a rose by another name smells just as sweet.”
Financial markets liked what they heard.
Stocks
DJIA
SPX
moved higher and yields on U.S. Treasurys
BX:TMUBMUSD10Y
moved lower during and after the press conference.
Read: Why stocks rallied after Powell’s press conference
Television pundit Jim Cramer, on his evening program, said the Fed “sounded a lot less eager to tighten than they did last meeting.”
“You know what that means don’t you? It puts the few industrial companies that are still generating good numbers at a real premium,” Cramer said, before adding a soundbite from Beethoven’s “Hallelujah” to drive the point home.
Derek Holt, vice president for Scotiabank Economics, said that he thought the Fed “inappropriately eased financial conditions and egged on financial markets to more aggressively price rate cuts next year.”
He said the Fed will have to scramble if inflation risks re-emerge.
Former New York Fed President William Dudley said Powell seems confident that interest rates are high enough to slow down inflation, and that confidence rubbed off on the market.
Dudley said he felt that Powell’s confidence was “pretty questionable.”
The fact that U.S. GDP grew at a robust 4.9% rate calls into question that rates are slowing the economy, Dudley said. He noted that most financial condition indices show that conditions were tighter last year than they are now.
But Powell appears to think he is done, and he is taking a lot of positive signals from this, Dudley said in an interview on Bloomberg Radio.
Many economists have already moved into the no-more-rate-hikes camp.
“Our base case remains that rates are at peak,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics.
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