The Federal Reserve hikes rates again despite softening economic data

Equity markets reacted bullishly, with growth stocks recording a strong bounce.

28 July 2022

As expected, the Federal Reserve (Fed) hiked rates by 75 bps to 2.5% following a unanimous decision in its Open Market Committee meeting. Inflation concerns remain the Fed’s its main point of focus and this overrides any softening economic data that has shown up recently and in its statement it acknowledged as much. Noting consumer spending has slowed significantly as a result of inflation eating away real incomes, Chair Powell also said that the employment market remained strong enough to withstand higher rates so continual large hikes (by historical standards) are still in the offing, until peaking around 1% to 1.5% higher from here. When asked whether he is concerned that the policy response will push the US economy into a recession, Powell preferred instead to stress the immediate need to squash inflationary pressures. Shame the central bank did not nip this problem in the bud last year. Equity markets have reacted bullishly despite the hawkishness with growth stocks (as measured through the Nasdaq Index) recording a strong bounce. Bad news is good news again for growth investors it appears.