Experts’ Views on Fed’s Interest Rate Hikes

Experts' Views on Fed's Interest Rate Hikes

The Fed Keeps Rates Up, Leaving Investors Wondering What’s Next

The Federal Reserve recently concluded its two-day policy meeting by raising interest rates, as widely expected. However, the surprise came when Fed Chair Jerome Powell left the door open to further tightening in 2023 and beyond. This decision has left investors unsure of the central bank’s future direction.

A Hawkish Stance

The Federal Open Market Committee (FOMC) raised the short-term federal funds rate by 25 basis points to a target range of 5.25% to 5.5%. This move was anticipated, but what investors were uncertain about was whether the Fed would signal a more dovish policy going forward. The pause in rate hikes last month, due to the success of the hawkish stance against inflation, had raised hopes for a potential shift in the central bank’s approach.

The recent June Consumer Price Index (CPI) report showed a 3% rise in annual inflation. Although this is lower than historical averages, it remains above the Fed’s 2% target. The Fed’s commitment to combating inflation was evident in its strongly hawkish statement, despite choosing not to commit to further rate hikes.

Expert Opinions

We’ve gathered insights from economists, strategists, and investment officers to provide a clearer understanding of the implications of the Fed’s decision.

Gurpreet Gill, Global Fixed Income Macro Strategist at Goldman Sachs Asset Management

Gurpreet Gill believes that recent data suggests the U.S. policy rate may have peaked in July, with core CPI inflation showing a sharp slowdown in June. Despite uncertainty surrounding the duration of the Fed’s hiking cycle, Goldman Sachs Asset Management has limited exposure to U.S. rates, expecting further disinflation progress to constrain the rise in U.S. Treasury yields.

Rajeev Sharma, Managing Director of Fixed Income at Key Private Bank

Sharma holds the view that the rate hiking cycle is complete, suggesting a pause for the remainder of the year. The market reaction aligns with this prediction, as yields across the front end of the yield curve have dipped slightly. He anticipates that Fed Chair Powell may use the upcoming Jackson Hole conference to communicate any stronger messages based on additional data available at that time.

Michael Gregory, Deputy Chief Economist at BMO Capital Markets

Gregory foresees a shift towards growth deceleration and disinflation, leading to a more prolonged pause rather than a September skip. He welcomes the possibility of a soft landing, but acknowledges upside risks surrounding the Fed’s call.

Jack McIntyre, Portfolio Manager at Brandywine Global

McIntyre describes the rate hike as a “nothingburger,” indicating that it provided the Fed with time to analyze economic data until the next meeting in September. He emphasizes the importance of the Employment Cost Index, highlighted by Powell, as the next market-moving data point. McIntyre asserts that the Fed’s monetary policy becomes tighter as inflation falls due to the resulting increase in the real, inflation-adjusted fed funds rate.

Bill Adams, Chief Economist at Comerica Bank

Adams suggests that the November 1st decision will be when the Fed next seriously considers a rate hike, as core inflation is expected to slow between now and then. He believes that rates have likely peaked for this cycle, considering the minor adjustments made in the Fed’s press statement.

David Russell, Vice President of Market Intelligence at TradeStation

Russell describes the Fed’s current stance as a “wait-and-see mode.” He comments on the uncertainty surrounding future changes, with the Fed remaining data-dependent. Russell highlights the importance of employment and inflation data, signaling that investors should put the rate hike behind them and focus on earnings.

Michael Hadden, Senior Portfolio Manager at Brinker Capital

Hadden views the Fed’s decision as expected, with no surprises. He believes that a delicate balancing act is required to engineer a soft landing, given the opposing forces of moderating inflation, a strong labor market, and a resilient economy. This will be a challenging task for the Fed going forward.

Chris Todd, CEO at UKG

Todd emphasizes the tightness in the labor market, noting that despite another rate hike, he does not foresee a near-term moderation in underlying conditions. The labor market presents ongoing challenges and its loosening remains uncertain, thus requiring careful navigation.

Jeffrey Hibbeler, Director of Portfolio Management at Exencial Wealth Advisors

Hibbeler suggests that the Fed’s actions will have an incremental effect on the economy over time, as monetary policy becomes more restrictive. The Fed will closely monitor the impact of previous tightening while evaluating future decisions.

David Rosenberg, Founder and President of Rosenberg Research

Rosenberg draws attention to the Fed’s omission of the recent cooling in payrolls and rapid decline in inflation in its press statement. By saying nothing, the Fed’s message is perceived as rather hawkish, indicating concern about achieving its target. The absence of a mention of declining inflation speaks volumes.

Quincy Krosby, Chief Global Strategist at LPL Financial

Krosby acknowledges that the Fed has left the door open for another rate hike if necessary, but overall the tone of the statement was more neutral than dovish or hawkish. The Fed remains watchful of the core rate of inflation, and further rate hikes will be contingent on its ability to decline at a faster pace.

Will Rhind, Founder and CEO of GraniteShares

Rhind believes that rates may have peaked for this cycle, as inflation falls and rates reach their highest level in 22 years. With the central bank remaining data-driven, the prospect of tamed inflation and a potential pathway to lower rates is cautiously optimistic.

Looking Ahead

As the Fed keeps rates up and maintains its hawkish stance, investors are left wondering what the central bank’s next move will be. With the labor market still tight and inflation exceeding the Fed’s target, future decisions will depend on a delicate balancing act. The Fed will closely analyze economic data over the coming months to determine the appropriate course of action. Ultimately, the market will remain data-dependent and closely monitor key economic indicators to anticipate the Fed’s next move.