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The Federal Reserve slows the pace of rate hikes to 25 bps

The markets react positively as Jerome Powell signals only a “couple more hikes”.

01 February 2023

The Federal Reserve (Fed) raised benchmark rates as expected by 25 bps to 4.5% - 4.75% target range. In the accompanying statement, it stated that additional increases (note the plural use) were appropriate from here which just about correlates with the market view that is hoping for at a maximum only two more 25 bps hikes in March and perhaps May. While this increase represents a slowing in the pace of hikes, after the 50 bps hike in December, the instant market reaction was mildly negative until Chair Jerome Powell began speaking at the press conference half an hour later. In his speech he went on record to state that the Fed is looking at only “a couple more hikes” which was as dovish a message as he could have given. Predictably markets got more bullish on the messaging and rose strongly. We should remember that an easing in financial conditions (on the back of markets powering up) is not what the central bank wants to explicitly see but for the moment markets are in control it seems and Powell did nothing to push back against that.

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Charles Hepworth

Investment Director
My Insights

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