The Stock Market Wants an Easy Fed. Powell Has Other Plans.
The Stock Market Wants an Easy Fed. Powell Has Other Plans. | Barron’s
Traders have placed a near definite chance for the Federal Reserve to slow down its pace of interest rate hikes once again on Wednesday, when it finishes its February meeting, and then perhaps a cut later this year. The markets’ overconfidence in this scenario is emerging as one of the bigger risks.
Investors are right to be on a slower pace of rate increases. After raising rates aggressively seven times last year, the Fed in its latest summary of economic projections said median interest rates will go as high as 5.1% in 2023. Do the math, and it implies that the central bank needs to raise rates by 0.75 percentage point from its current policy rate of 4.25% to 4.50%. Participants on the CME FedWatch tool, however, see two 25 basis point rate hikes on Feb. 1 and March 22, respectively, and then a pause.