Welcome to the FIA News & Insights, a one-stop resource that includes insights from senior investment professionals on timely market events, their views on the economy and their respective markets. Find updates on the latest media information on Frost Investment Advisors, LLC and the most recent reprints, as well as, archival information for your reference.
Window for Soft Landing Narrows Again as Expected Terminal Rate Continues to Rise
The Fed raised rates yet again at its November meeting, its fourth consecutive hike of 75 basis points, bringing the federal funds rate to the 3.75% to 4% range. The accompanying statement implied that while the Fed expects ongoing increases, the pace of tightening may moderate if rate increases have the intended effects on the economy. The equity markets rallied on news of the smaller hikes, and then the press conference started. Chairman Jerome Powell, once again channeling his inner Paul Volcker, warned that analysts should be less concerned with how fast rates are rising and instead shift their focus to the terminal rate and how long rates will remain high. He reiterated his earlier comment that “history cautions against premature loosening of policy” and noted that “rates have to go higher and stay higher for longer.” Powell highlighted that incoming data suggests the rate path will be higher than the Fed anticipated in its September Summary of Economic Projections, which projected rates of just over 5% and remaining near 4% or higher at least through the end of 2024. Powell also admitted that the window for bringing inflation back down to 2% while avoiding recession has narrowed because the decline in consumer prices has been much slower than the board anticipated.
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