Fed Raises by 75-bps But Signals More Normal Hikes Possible, PCE Comes in Hot

The Fed’s July meeting was on Wednesday and, as expected, the FOMC raised rates by 75 bps to a range of 2.25%-2.5%. This was the second consecutive jumbo rate hike. The two back-to-back hikes of 75 bps were actually the most stringent consecutive action since the beginning of the 1990s when the Fed began using the rate as its primary mechanism of implementing monetary policy. The Fed Funds rate is now the highest it’s been since the end of 2018. Unlike the last large rate hike the Fed received unanimous approval.

While markets priced in a potential 100 bps hike after June’s hot CPI print, they subsequently retreated. Chairman Powell seemed to talk tough on inflation, saying a recession was an acceptable consequence if it was needed to get price pressures under control. On the flip side, he also said that 75 bps was still on the table when directly asked. The Fed’s annual meeting at Jackson Hole is in August and may provide additional evidence on the Fed’s thinking.

The Fed’s statement had some changes. It started out by acknowledging the economy was slowing compared to the prior meeting. It mentioned that job gains have still been “robust” in recent months. Though this language was added, Chairman Powell also added that he did not believe the economy was cu...

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