- While policymakers were agreed on “expeditiously” ramping up rates to a more neutral setting, neither stimulating nor stunting the economy, they were divided on the aggressiveness of tightening.
- The goods news for investors of course is that if interest rates aren’t raised as aggressively, there’s a chance that stocks which have been hammered so far, may see a relief rally – but the durability of any such rally is suspect.
Concerns that the Fed will tighten too much have been assuaged with minutes from the last rate-setting meeting that appear to reveal a central bank trying to navigate between the Scylla of inflation and the Charybdis of causing a recession.
Meeting minutes reveal that policymakers discussed the possibility of moving the Fed to a “restrictive” policy stance through more aggressive interest rate increases, but worried that this could undermine the recent strong recovery in the jobs market.
While policymakers were agreed on “expeditiously” ramping up rates to a more neutral setting, neither stimulating nor stunting the economy, they were divided on the aggressiveness of tightening.
In fact, central bankers even considered that less aggressive tightening (loosening?) or even a pause in rate hikes may be on the table later in the year if the U.S. economy started to slow down dramatically, although that was not the Fed’s main assumption.
U.S. new home sales plunged to their lowest since the start of the pandemic with purchases of new single-family homes falling by 16.6%, the weakest since April 2020 according to government data and adding to growth worries.
The housing sector makes up around 17% of U.S. GDP, split between construction and remodeling which makes up around 5% and housing services, which includes rental payments, at 12%.
Earlier this week on the sidelines of a speech to the Atlanta Rotary Club, Atlanta Federal Reserve President Raphael Bostic revealed that a Fed rate-hike pause might “make sense” in September, suggesting that the economic outlook is not as sanguine as hoped for.
Major U.S. retailers are cutting back earnings outlooks and orders for capital goods, an important proxy for future U.S. manufacturing output slowed, missing economist forecasts.
The goods news for investors of course is that if interest rates aren’t raised as aggressively, there’s a chance that stocks which have been hammered so far, may see a relief rally – but the durability of any such rally is suspect.
