Yahoo Finance Live anchors discuss the Fed’s FOMC meeting, the pace of rate hikes, and the outlook for inflation.
- After raising rates by 75 basis points for the second consecutive month in July, the latest Federal Reserve minutes signal that the central bank is likely to slow the pace of policy rate increases at some point. For when that might be, let's bring in Yahoo Finance's Brian Cheung. So Brian, tell us, what exactly is the Fed going to do, what day, and what time?
BRIAN CHEUNG: Well, at some time is the exact language that was in the minutes. And I have no more clarity into when that time might be. But, look, these are minutes that cover the Fed's July meeting in the last week of that month. And, obviously, this means that we're talking about commentary that happened before the last print that we got on inflation from the consumer price index. We have the big highlights. All the participants agreed to that 75 basis point hike. Again, there was some commentary into that meeting. Maybe they would go for a full 1%.
But everyone agreeing to go with the more relatively smaller hike, at least for that meeting. And most of the participants also expect what they call a moderate increase in unemployment. This is kind of interesting because this does show some concern within the Fed that maybe there could be a large uptick in how many people are employed in this country-- or rather, unemployed in this country, especially as we continue to talk about this hard landing.
And you saw a lot of commentary in the minutes about a concern that maybe the Federal Reserve is actually worried about over tightening. And one big reason is because the lag effect of monetary policy. The bite of the rate hikes that we had seen so far this year might not be fully seen until later this year. So if inflation's already starting to come down, trying to time how to hit those brakes with what's actually going to be a slowdown in the labor market, for example, a very tough situation.
That's one reason why Tim Duy, a Fed watcher over at SGH Macro Advisors, saying that, if anything, it's not necessarily dovish, it was more bearish was the reading on the minutes in that July meeting, essentially underscoring how concerned Fed officials are about at some point trying to stop the car. So, again, at some point, the Fed's already thinking about when to start making those interest rates hikes a little bit smaller. 50 basis points. 25 basis points. We'll see if they do that in September.
- Yeah. And there was no talk about cutting rates, which is something that the market is already pricing it. I mean, it's also interesting just that the Fed itself is obviously very cognizant of the challenge that is involved in doing all this, which, I don't know, maybe that's reassuring to the market. I don't know how they wouldn't be cognizant. I'd like to note out from the spokes George Perks, where he talked about that there was something for everyone in these minutes. But he said, wish casting is not a fruitful exercise. I like that term. Wish casting. Like, reading into it what you want to read into it.
BRIAN CHEUNG: Well, one challenge with the Fed minutes is, again, markets-- we have to remember, every time Fed minutes come out, it's always three to four weeks after the policy setting meeting, by which point a lot of economic conditions have changed. And what does everyone want to glean from the Fed minutes? What the Fed is going to do in the next meeting. But it's kind of a weird situation because you see markets bounce. We actually saw some not crazy moves, but we saw some blinking in the markets overall yesterday after the minutes released at 2:00 PM.
But, again, this is for something that happened three to four weeks ago. But I think what's important here is that when you talk about wish casting, I have compared the Fed minutes to almost like mom calling you for dinner from the perspective that you might hear mom downstairs say, hey, it's dinnertime, and you might, eh, it's not really fully registering. And then when she says it with her full chest, right, hey, time to come downstairs for dinner, then you get the message.
For Fed messaging, sometimes it's the same thing. A lot of people freaking out yesterday about, well, the Fed at some point might start to do smaller rate hikes. Well, they might have to say that twice. They have to get the message out there multiple times, even though Fed Chairman Jay Powell said that directly in the Fed press conference. You can rewind it. He said it at the very beginning of the press conference at some point we'll make these unusually large rate hikes a little bit smaller.
So, again, nothing new from the Fed minutes. But it is certainly the case that because of just how topical and quick things are moving right now, obviously, people will look at these minutes, and go, oh, wait. That seems new or that seems new. But it's really not.
- Did your mom always yell at you, Brian?
BRIAN CHEUNG: She did. I was the guy that needed to be called three or four times.
- This analogy really hits home for me, guys.
BRIAN CHEUNG: You know what I'm talking about, right?
- Oh my gosh do I.
BRIAN CHEUNG: It's time to eat. The food is going to get cold. But you got to say it three times.
- Yes. Guys. Guys, come downstairs. Yeah. Yeah. Yes. Thank you so much, Brian. Appreciate it. Sozz is loving this.