The markets were riveted on one man on Wednesday as 2.30pm EDT rolled around. Chairman of the Fenderal Reserve, Jerome Powell was to provide a state of the market or more to the point "a state of inflation" update. A 0.5% increase in interest rates was already baked in. The unknown was whether the tone of the Federal Reserve Chairman was going to be increasingly hawkish or more in line with market expectations.
As we have said in previous blog articles, the goal of the Federal Reserve is to curb spending and bring inflation back down into its 2% per annum goal. The Federal Reserve is well aware that acting too hawkishly could send the economy into a recession and not acting agggresively enough could let inflation run amock. They are are having to walk an intricate balancing act to send the message that they will take aggressive action while at the same time keep an eye on the health of the economy.
In summary, Powell communicated exactly that on wednesday and that their primary intent is to dampen demand to bring inflation down while at the same time allowing the economy enough bandwidth to keep growing. At this juncture, the Fed projects a target of 2.4 percent by year's end. The markets responded by continuing to sell-off as they try to digest the impact of rising rates on the economy. A more pessimistic outlook will need to be swayed by market forces that point to "more light" at the end of the tunnel.
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