As widely expected, the Fed hiked its base interest rate by a quarter of a point. It’s the highest in 22 years. 
FOMC Statement
Recent indicators suggest that economic activity has been expanding at a moderate pace. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated.
The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 5-1/4 to 5-1/2 percent. The Committee will continue to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Live Press Conference
There is nothing in the FOMC Statement that is the least bit surprising although some will suggest the Fed may have tightened too much.
If you missed it, please see Beware the Huge Negative Lag Impact of Three Rounds of Covid Stimulus
The Fed’s fear is backing off too soon and getting another inflation blast higher.
The Fed will surely welcome a two-month pause. The next FOMC meeting is not until September 20.
The Fed has increased FFR toward an historical average, while they truncate QT, which keeps long rates at historical lows. Liquidity in the bond market does not come from investors, as market indexes approach all time highs. The Fed has placed the burden of stifling inflation on consumer borrowing. While wealthy capitalists use historically cheap long-rates to bankroll projects that minimally sustain the economy. The modern version of ‘trickle-down theory’. Except, the financial ventures of the wealthy are projects that are for, and benefit, other wealthy capitalists. Like the luxury condo boom for crypto investors. Who are buying hard assets with profits from bogus currency.
The markets will keep heading higher as interest rates creep up. And then, invariably, something breaks. Then the rates are brought down in a big hurry. And the markets keep falling along with interest rates, until some massive QE is announced and put into action. Rinse and repeat.
I think one of John Hussman’s past articles talks about this in great detail.
Negative real interest rates are not high interest rates. Interest rates are highly negative and going more negative after such a miniscule rate hike. Unions are bargaining over 40% pay increases over four years. Airline pilots rejected that offer because it does not meet inflation.
When they crash the everything bubble will they blame climate change, or Trump?
According to Hillary, they’re one and the same.
The Fed wants your money.
The Fed has my money.
It says so on the banknotes.
I have no idea how they can claim the banking system is stable as interest rates continue to rise.
SOMEONE is holding a LOT of treasuries and other bonds in 2% range and losing 3% or more based on new bond issuance rates. Either it’s banks (in which case the banking system is not stable once depositors pull their money to buy higher yield securities), foreign governments (the best we can hope for is it’s China) or it’s pension funds (in which case a different kind of crisis is going to be brewing shortly in CALPERS when they can’t meet their returns needed to keep up with inflation based pension draw downs).
I think the Fed owns a 1/3rd of it. The Fed + Foreign holdings is over 1/2 and Fed + Foreign holdings + Mutual Funds is 2/3rds.
I should have said the Fed and Government institutions own 1/3rd of it.
Good point!
Janet says the banking system is safe and resilient while climate is an existential crises. I think she got it backwards.
Wasn’t the FED also supposed to be reducing it’s balance sheet? Looks like it’s still over $8t. Doesn’t seem like they’ve reduced much at all.
It’s going to be a slow process since a lot of the run down is MBS which gets paid down very slowly.
So far the are down ~670 Billion from the peak to around 8.25 trillion or roughly 8%.
Hundreds of billions added to forestall collapse of small banks. Not going to be a straight line since the next black swan event is due soon, according to rules of probability.
https://ritholtz.com/2023/07/2-inflation-target-dumb/
Barry Ritholtz seems to be feeling the pinch😊.
He needs lower rates and higher inflation for some reason. If this keeps up he might actually have to drag his butt out of his latest super car and do something other than buy a whole market ETF for his clients.
So, should the correct inflation rate be zero, or the change in wages minus the change in productivity?
LOL – Barry is always complaining about something but he does write some interesting articles on occasion.
I don’t believe there is a correct inflation rate any more than there is a correct interest rate. Both are going to be ever changing numbers depending on market conditions and trying to force them to be fixed at a specific number is a fools errand.
If the economy is functioning properly what’s the difference?
i shall repeat. the FEDRESNY is privately owned. only one mandate. to re load bazooka for their owners, JPM, C, ….
the middlebrow analysts have not a clue about where they live and who manufacters their computer currency.
CRE coming debacle will reap huge rewards for nyc money center bankers as they steal the regional banks.
mish, your r/e stuff is stellar. your take on FED policy has been so wrong for so long. remember bud, inflation in money is cumulative as is pricing inflation. keep up the r/e stuff. CRE is gonna be epic. the plague changed so many lives work/life retirement plans……….FED chairmen are better hucksters than even the donald. he has to beg for money. FED hits the zero cursor and bingo, JPM gets free dough
The time will come shortly when this and the next rate hike will cause a catastrophy. Baltimore and other cities are a good example of deep CRE problems. This will be a long term fundemental problem.
Volcker raised interest rates in 1982 to a level 14.5% above Powell.
Fed Funds rate in 1982 was 20%. Prime rate in 1982 was 21.5%
Powell, with over $100 million in his piggy bank, has a long long way to go.
If he has guts.
Expanding economic activity, robust job gains, and low unemployment. The markets are strong. What’s not to like? Why not raise? And why cut, ever?
Exactly. It’s funny but the exact same statements were made when interest rates were around 0%. It’s almost like the Fed is saying that interest rates don’t matter and everything is fine, nothing to see here.
Makes sense to me. 5 1/4 to 5 1/2 doesn’t seem like a high rate. It just gives savers that were screwed with rates at 0% a chance to save and grow risk free.
On the borrowing side, there needs to be a non-trivial cost of capital to prevent and clear malinvestment.
Yes, good for savers but not so much for markets. As Mish said, highest since 2001. We all know what happened then. The market couldn’t handle an even lower Fed Funds Rate in 2007 and 2020. And markets are so much higher now than then – highest ever relative to interest rates.
This will not end well.
Interesting.
Stocks purchased with earned money instead of borrowed money.
FedAI could have spat out that statement or maybe it did.
You deserve a like for that.
FedSpeak would be easy for an AI.