THE FED'S OWN UNCERTAIN FORECASTS Fed policymakers plan to stop raising interest rates once they are convinced inflation is headed down to the central bank's 2% target. "We haven't gotten to a point of confidence about that yet," Powell said last week.
They also plan to start cutting interest cuts well before inflation actually hits their goal, so as to prevent policy from becoming too restrictive given falling inflation.
Their latest quarterly forecasts imply they now feel they will need a higher inflation-adjusted "real" rate to adequately brake the economy and win the inflation battle.
But Powell also emphasized that the forecasts are highly uncertain, so it is little surprise that traders and economists are also expressing doubts.
"We see real rates flat in 2024," Morgan Stanley analysts wrote, laying out a view for no more Fed rate hikes in 2023 and a full percentage point of cuts next year.
The market - in this cycle at least - has been wrong each time it doubted the Fed's resolve and has had to come around to the central bank's position eventually. Of course this time is somewhat different, with the Fed, by its own admission, essentially up against the end of its rate hikes. Next year's direction is almost certainly lower, but the market has misjudged the cadence on the way up. It remains to be seen whether it will get it right on the way down.
GLTA