This is what it sounds like when hawks cry
The Fed may have kept rates unchanged, as expected. But the dot plot suggests that two more hikes may be coming this year.
So much for the Federal Reserve declaring victory on inflation?
Sure, the Fed left rates alone Wednesday. But this may be just a brief pause and not a full stop. If you look at the Fed’s projections in the so-called dot plot, the median expectation for where rates will end this year is now 5.6%. That’s up from 5.1% and suggests that the central bank will raise rates two more times before the end of 2023. That assumes, of course, that the Fed is done with super-sized half-point and 75 basis point hikes and is back to more standard quarter-point increases.
The market’s knee-jerk reaction was to sell this news. Stocks tumbled to their lowest levels of the day on what appears to be a more hawkish Fed statement than expected. The Fed continued to note that “inflation remains elevated” and that it “remains highly attentive to inflation risks.”
The good news is that the Fed also still thinks that the job market will remain healthy and that the unemployment rate will only rise modestly, to 4.1% this year. But the central bank’s forecast for core inflation rose, a likely reason behind the higher rate expectations. And the Fed also is predicting that GDP growth will remain anemic for the next few years, at just 1.1% in 2024 and 1.8% over the longer-term.
That’s hardly a cause for celebration. So it will be interesting to see if Fed chair Jerome Powell makes matters worse during his press conference later this afternoon or if he actually gives some reassuring words about inflation, rates and the economy. Stay tuned.