Medicare Agent News: The Fed Pushes Back

Tuesday, September 27, 2022

The Fed Pushes Back

By Alex Eule | Thursday, August 18

The Hawks Fly Again. Investors have gotten more optimistic in recent weeks that inflation has peaked, bringing a potentially quicker end to rate increases from the Federal Reserve. For the September meeting, investors now strongly expect a rate hike of half a point, according to futures market trading. A month ago, the market was bracing for a larger hike of three quarters of a point, or 75 basis points. The more dovish forecast has come with strong gains for stocks.

But it's possible investors are getting ahead of themselves. Yesterday's release of minutes from the Fed's July policy meeting suggested a mixed view from Fed governors about how hawkish they'll be in the coming months. In one section the minutes read: "The staff viewed the risks to the inflation projection as skewed to the upside given the persistent upward surprises seen in the inflation data." But the Fed governors also acknowledged the risk of getting too hawkish:

Many participants remarked that, in view of the constantly changing nature of the economic environment and the existence of long and variable lags in monetary policy’s effect on the economy, there was also a risk that the Committee could tighten the stance of policy by more than necessary to restore price stability

The response from investors suggested some confusion. In today's trading, stocks waffled from positive to negative territory, with the major indexes closing largely flat on the day.

Multiple Fed governors spent the day trying to offer more clarity around the rate environment. In an interview with the Wall Street Journal, James Bullard, the president of the St. Louis Fed, said “I would lean toward the 75 basis points at this point."

Meanwhile, in a speech today Kansas City Fed President Esther George added her own rather hawkish view, Reuters reports: "To know where that stopping point is ... we are going to have to be completely convinced that (inflation) number is coming down."

Completely is a strong word that suggests the end of rate hikes might be farther down the road than investors expect.

Perhaps one good sign for the Fed that its rate hikes are working: The speculative stock trade seems to be breaking down once again. The recently soaring shares of Bed Bath & Beyond finished the day down 20% after investor Ryan Cohen indicated he was potentially selling his stake in the home goods retailer. The stock was down another 43% in after hours trading tonight, following confirmation from Cohen that he had sold his entire stake. Barron's Connor Smith has more on Bed Bath and Cohen here.