Fed ‘Skip’ But Hawkish Dot Plot Sees Markets Upwardly Revise Rate Expectations

This represented the first time that the FOMC opted to keep rates unchanged in the last
ten meetings spanning fifteen months, as they signalled a ‘skip’ to their monetary tightening cycle.

Rhetoric from policy makers since the FOMC’s meeting in May has focused on the subtle difference between a ‘pause’ and a ‘skip’ (where the latter denotes an intentional decision to leave out a hike before continuing to tighten later on). As such, during Powell’s press conference, the Fed’s Governor was keen to reiterate that there may be more rate hikes this year and looked to provide a defence to the ‘skip’ stating that “it seemed to us to make obvious sense to moderate our rate hikes as we got closer to our destination”.

The release of the dot plot also suggested that most policy makers are projecting two more

hikes of this year. This, along with Powell’s hawkish comments, has seen markets upwardly revise their rate hike expectations for the Fed, given that many investors were previously weighing on just one additional 25bps hike this year.

Powell was also keen to defend the Fed’s actions by arguing that the skip would allow policy makers more time to assess the impact of their tightening cycle. This being particularly important, he argued, given the time lag between hiking rates and seeing the effects on the wider economy. As such, FOMC members’ monetary decisions will continue to be highly contingent on data around inflation, the labour market, growth and banks’ balance sheet’s resilience to the Fed’s tightening.

Privileges Committee to Publish Report on Johnson’s Conduct

Today will see the Parliamentary Privileges Committee publish their report on former PM Boris Johnson’s conduct to the House of Commons around party-gate. According to the FT citing sources close to the inquiry, Johnson “will have been found to have committed ‘multiple’ contempts of parliament” including “being found to have misled MPs”. With

Johnson already resigning last Sunday, and tensions high between the former and current PM all eyes are on the findings of the report and subsequent statements from Downing Street’s former and current resident.