no guidance

The Fed to markets: Don't expect us to tell you what comes next

The Fed to markets: Don't expect us to tell you what comes next
Image: Elizabeth Frantz (Reuters)
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The US Federal Reserve policy makers raised interest rates by another 75 basis points on Wednesday, just as most economists expected.

Next time around, the size of the hike will likely be a lot harder to predict. Fed chair Jerome Powell said going forward the central bank will no longer offer guidance on what it plans to do with interest rates. At the moment, the economy is in such flux, that the Fed needs to parse where it’s going in real time, he said at his usual press conference after the Federal Open Market Committee (FOMC) meeting.

“We think it’s time to just go to a meeting by meeting basis, and not provide the kind of clear guidance that we did on the way to neutral,” Powell said.

Usually markets get a lot of hand-holding when the Fed is expecting to change interest rate policy. Officials try to give the public a sense of what the pace of hikes might look like. But the effects of the pandemic and Russia’s invasion of Ukraine have muddied the picture, and made it harder for the Fed to look ahead.

One recent example: The latest consumer price index, which went up 9.1% on the year. The rise, Powell said, was higher than Fed officials had anticipated.

Powell, however, did not leave markets completely in the dark. He said it’s possible the Fed could raise rates higher than 75 basis points sometime in the future if it doesn’t see evidence of inflation coming back down.

“I’d say that we wouldn’t hesitate to make an even larger move than we did today if the committee were to conclude that that was appropriate,” Powell said.

The US is not in a recession

In explaining Wednesday’s hike, Powell said the US job market is robust, adding around 375,000 jobs each month in the last three months. Though he expects it to cool off somewhat, given its strength, it should be able to absorb higher interest rates without tipping the economy into a recession.

When asked if the US is currently in a recession, his answer was a clear “no”.

“I do not think the US is currently in a recession,” Powell said. “With 2.7 million people hired in the first half of the year, it doesn’t make sense that the economy would be in recession with this kind of thing happening.”

Image for article titled The Fed to markets: Don't expect us to tell you what comes next
Graphic: Quartz

But some economists worry the situation could change quickly given the speed and size of the Fed’s hikes. Though higher prices are eating into the budgets of American families, the layoffs that would come as higher interest rates curb economic activity would hurt poor people more than inflation, noted former Fed economist Claudia Sahm on Twitter.

The next time the FOMC is scheduled to meet to decide on interest rates is September 20 and 21.