As expected, the Fed increased rates by 75 basis points this week and suggested a similar hike may be needed at its next meeting in September. In his press conference, Jay Powell, the Fed’s chief, noted that beyond September the bank would provide less forward guidance and make it all about emerging data.
Markets seem relieved to hear that and equity markets zipped up. Presumably taking comfort that Powell and team weren’t on automatic pilot, which could flatten the economy before weak data started to yell it was time to stop.
Various versions of the most commonly asked question from the legion of reporters at the press conference was: “are we in a recession and/or are you trying to avoid one?” For the record Powell didn’t think so and certainly didn’t intend to drive the economy into the ditch. But when pushed on how committed he is to fighting high inflation if we hit a recession, his unequivocal response was “getting inflation down…we see as something that we simply must do.”
Post meeting data showed the U.S. delivering negative growth for the first half of the year. This alone could qualify as a recession, but given robust employment no one is going to jump to that conclusion just yet.
Source: Financial Times, 2022