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US reaction: Powell exacerbates cut expectations – accident or design ?
- 15 December 2023 (5 min read)
Key points:
- Fed left rates on hold by unanimous decision.
- Statement acknowledged softening in growth and progress in inflation, but that it remained elevated.
- Fed shifted bias to state that it would determine “any” further tightening – additional hikes “not off the table, but not base case”
- And Fed Chair Powell presented some of the right phrases to dissuade markets from aggressive rate cut pricing
- However, Powell also said the FOMC had preliminary discussions about cuts and was wary of “making mistake” of “holding on for too long”.
- These comments proved a red rag to a bull (market) with rates and equities markets surging.
- We do not think this was the Fed intended – it was contrary to their forecasts.
- We continue to suggest just three cuts next year from June, but relative to current market pricing that will deliver material disappointment if it proves correct.
Exhibit 1: December’s Summary Economic Projections
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