Monday, October 2, 2023

Rate hikes aren’t over (but the future is a pause)

That a battalion of senior central bank managers are talking and none of them mentions the ease ​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​ That the main hawk in office (after the retirement of James Bullard), Governor Chris Waller, points out that there is nothing that urges the swineherd to “act soon” reveals a consensus: not stirring of well water.

As it happened in June, there will be a pause. If Waller doesn’t push for action (and Bullard is gone) no one will insist. “We can sit and wait for the data,” said the hawk, satisfied. Jerome Powell, the boss, has already advanced it in Jackson Hole. The Fed has judged that inflation is too high, wants the economy to calm down, but may continue to be “cautious.”

The monetary crusade has matured. It is closer to an administrative end without trauma than the rush to start it (long term, with rates at zero and inflation at 7%). Since it did not happen in June, this time, the suspense does not want to extend until the result of the rally. Not that there are many doubts – not after enjoying an employment report tailored to the needs of monetary policy – but the sedative intention should be appreciated.

It is known that at this point the keeper is concerned about not breaking anything. However, VIP treatment is uncommon. Could he have seen another fierce battle between the Biden Administration and the Republican opposition? If in May there was a bid for the public debt ceiling (and cost Fitch to lower the credit rating), now the budget must be agreed for the year that starts on October 1. And the spending authorization will run out next which is the 30th. Are we back on the brink of a nervous breakdown?

Communication gives us peace. There was calm even though this week’s data was a mess (inflation and retail sales). The falcons will wait comfortably without flight until November. And if the government partially shutdown in October – the last “shutdown” with Trump in 2018/2019 – they don’t want to change either. The repatriation of public employees is deflationary even though it will not last long.

The talk of central bankers does not end here. “Monetary policy is in a very good location,” said the man in charge of the trading desk. John Williams, from the New York Fed. Inflation has not been extinguished, but the economy is moving “in the right direction.” The central bank’s growing self-confidence is based on a double coincidence.

Politics is limited, it is no longer running behind events. The true positive rate allows you to advance the boxes even if you remain idle. And the key variables – inflation and the real economy – respond to its influence. The Fed relies on the data, Williams emphasized and repeated it all over again. And now the process is recursive. The data also turns out to be dependent on the Fed. So, the steps ended.

It’s time for stops and short steps to calibrate the fine tuning of the landing and not risk crashing. Loretta Mester (Cleveland Fed) and Susan Collins (Boston Fed) noted that rates may still need to rise. The hawk Waller agrees to leave them as they are. He asked for little in return: “one month of information that preserves the current trajectory and I will say that we are done.”

It was written here last week: moderation (noticing new data) holds the key to ending rate hikes. Now, then, it’s semi-official.

Wall Street is paying attention, but not inflating its bubble. The traditional low season extends until Halloween (end of October). After the rally established a new bull market, there was no need. Revenue projections go up, which is better. High rates have also increased but not with the intention of challenging the cycle ceiling. Moderation of employment calmed them down. Only liquidity is strong and large placements of private debt keep them from going down.

How can they increase the price due to the increase in the price of crude oil? Like the Fed, Wall Street is also rehearsing a study break. His crusade is not over, it has just begun; but he preferred to check the ground carefully before running again.

Nation World News Desk
Nation World News Desk
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