Breaking News
Investing Pro 0
Cyber Monday Extended SALE: Up to 60% OFF InvestingPro+ CLAIM OFFER

Analysis-Blown off course again, Fed policymakers see near-record uncertainty

Economy Jun 16, 2022 03:52PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. U.S. Federal Reserve Board Chairman Jerome Powell departs after facing reporters at a news conference following a two-day meeting of the Federal Open Market Committee (FOMC) in Washington, U.S., June 15, 2022. REUTERS/Elizabeth Frantz
 
BARC
+1.59%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
MS
-2.56%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
LNN
+0.16%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Ann Saphir and Lindsay (NYSE:LNN) Dunsmuir

(Reuters) - Federal Reserve policymakers are less confident than at any time since the height of the pandemic about what will happen with the economy, data published alongside their forecasts and the Fed's hefty three-quarters-of-a-point rate hike this week show.

The last time they were this worried they could be underestimating the coming deterioration in the labor market was in the depths of the Great Recession. But they are even more worried they are overestimating a hoped-for decline in inflation, documents https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20220615.htm charting confidence and risks seen in their forecasts show.

The data helps underscore why policymakers are so focused on raising interest rates fast even if doing so causes a bigger dent to growth and unemployment than previously hoped, and why it is clarity on the inflation outlook that will drive policy.

"It is clear that path of inflation continues to be the key consideration in how quickly the Fed gets to, and how far it moves past, the range of neutral in order to bring inflation down 'clearly and convincingly,'" wrote Morgan Stanley (NYSE:MS) economists, referring to the standard Fed Chair Jerome Powell has set for declaring victory on price pressures and slowing up on rate hikes.

All 18 Fed policymakers are more-than-usually uncertain about their inflation and economic growth forecasts, and all but one note the same about their unemployment rate projections, the data shows. The same documents also show that no policymaker believes their forecasts are too pessimistic, and most believe they could be underestimating the risks.

Graphic: Fed uncertainty on the rise- https://graphics.reuters.com/USA-FED/zdpxoedzjvx/chart.png

That means that though Fed forecasts embody the "softish" landing to which they aspire - inflation dropping to 2.2% by 2024, with the economy motoring along at 1.9% and unemployment rising just half a point to 4.1% - they are worried things could be worse, particularly for inflation.

It also means, as with this week's last-minute decision to deliver a hefty 75 basis point move after worse-than-expected inflation readings, that what Powell calls this "extraordinarily challenging and uncertain time" is sure to leave investors hanging.

RAPID PACE OF RATE INCREASES

Unquestionably, interest rates will rise, and rise fast: 17 of the 18 Fed policymakers see the target rate at least at 3.6% by next year, two full percentage points higher than today, and five see it above 4%.

But is that where they will end up? Not even Fed Chair Powell knows. "I think we'll know when we get there," Powell told reporters Wednesday.

"With the FOMC looking to remain nimble amid heightened uncertainty, guidance set out by communications should not be regarded as written in stone," Barclays (LON:BARC) economists said in a note to clients following the this week's Federal Open Market Committee meeting.

Graphic: Is the Fed too optimistic?- https://graphics.reuters.com/USA-FED/egpbkgydmvq/chart.png

It's a warning that investors may need to keep in mind as Powell's colleagues start Friday to make their first public statements after this week's policy meeting, and when Powell gives testimony next week before lawmakers on Capitol Hill.

Analysis-Blown off course again, Fed policymakers see near-record uncertainty
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (2)
Roger Miller
Roger Miller Jun 16, 2022 3:57PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
The pit falls of having central planners try and control what's supposed to be a free market economy.  Central planning has only had modest success, such as in China, when it's overseen by an iron fist, which is why socialism always ends that way.
Mart Bab
Rubberduck1973 Jun 16, 2022 3:57PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I think you mean communism
Ethan Strong
Ethan Strong Jun 16, 2022 2:53PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
They had all last year to start raising rates to slow inflation. What do they do? Wait till it's so out of control and then try to play catch up. Worst group of people running the Fed. Should all be fired
john smith
john smith Jun 16, 2022 2:53PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I'll do one better.Get rid of the federal reserve all together.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email