Don’t see the Fed leaving interest rates unchanged as something positive.
It’s a “hawkish pause,” as so many analysts pointed out, meaning that the Fed might still swoop in with more hikes later this year — as the central bank itself projected. To use more animal imagery, when thinking about the Fed’s decision this meeting, perhaps the bank’s not so much a hawk, but a tiger stalking its prey — it freezes, pauses, before pouncing and killing.
The metaphor works in more ways than one. Prominent investors and economists are warning that the Fed might be overzealous in its tightening campaign, and will render lifeless an economy that’s already fading. “There are so many indicators that are deeply in recessionary territory,” Gundlach said. Indeed, Wharton professor Jeremy Siegel’s “worried about whether [the Fed] stop[s] soon enough.”
Fed Chair Jerome Powell, as if aware of the worries, did throw investors a lifeline during his press conference. He noted that “the conditions that we need to see in place to get inflation down are coming into place.” And if inflation does indeed fall further, Powell suggested the Fed might deviate from its projections and keep rates steady. July’s Federal Open Market Committee “will be a live meeting,” because “a decision hasn’t been made,” Powell said.
For investors feeling like vulnerable prey, then, there’s a chance the Fed might decide to walk away in the end. But even if the Fed doesn’t hike in July, it’s likely to hold rates steady for the rest of the year. Still, considering the resilience of the economy in the face of 5% rates, markets may yet live.
