Tug-of-War Between Fed Chair Powell, Investors

Is Fed Chair Powell preparing to change his mind?

In late June, he said, “A strong majority of (Fed) committee participants expect that it will be appropriate to raise interest rates two or more times by the end of the year. Inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go.”¹

The accompanying table shows that 98% of investors believe the Fed will raise short-term interest rates from 0.25% to between 5.25% and 5.5% at its July meeting.

But after July, the Fed Chair and investors disagreed about what will come next. The table shows that most investors believe the Fed will not raise rates again.

So who’s correct; the Fed Chair or the investors? The Fed Chair may have more insight into the economy, but investors are positioning portfolios based on their outlook for rates. So both have a lot at stake.

I’ll be watching the outcome of the Fed’s July meeting, and I’ll check to see if any comments from Fed officials influence investors' outlook for rates. In the meantime, enjoy the summer. School will be back in session before you know it!

^{1. Fortune.com, June 29, 2023. “Fed chair Jerome Powell warns that to cool inflation at least 2 more interest-rate increases are probably coming.”}