The Fed pressed pause on its interest-rate increases this month after boosting borrowing costs 10 times since early 2022. The move spurred a wave of commentary given the central bank at once held rates and signaled more hikes. Here’s what Larry Summers, Mohamed El-Erian, David Rosenberg, Jeff Gundlach, and others have said. Loading Something is loading.
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The Federal Reserve just held interest rates and signaled future hikes at the same time – the move caught the market somewhat by surprise, and baffled many commentators.
In its much-anticipated policy announcement on Wednesday, the Fed kept its benchmark rate unchanged in a 5%-5.25% range, snapping a streak of 10 back-to-back hikes aimed at taming inflation that hit 40-year highs in 2022.
The decision followed a fresh inflation print that was good news for American consumers, showing that the annual pace of price increases declined to 4.0% – the lowest since March 2021. Chair Jerome Powell acknowledged that the cumulative effect of the past year’s aggressive policy tightening has created risks for rate-sensitive sectors of the economy, including housing and banking.
However, despite its move to hold rates for now, the central bank still signaled further policy tightening ahead – with policymakers projecting two more 25-basis-point increases before year-end.
Here’s how eight top market commentators have reacted to Fed’s latest monetary policy move.
Larry Summers, former Treasury SecretaryThe Fed’s move to hold rates and signal hikes at once reflects an inconsistent approach that may have been influenced by the central bank’s internal politics, Summers said.
“This meeting felt like it was driven as much by the internal political dynamics of the Fed, as by any consistent and coherent reading of the economic situation and that was a bit disturbing to me,” Summers told Bloomberg on Thursday.
“I found the Fed’s action a little bit confusing. I understand the arguments for not hiking this at this meeting. But those arguments wouldn’t point towards signaling two further rate increases, they wouldn’t point towards significantly revising the forecasts towards a stronger economy and more inflation,” he told the outlet.
Mohamed El-Erian, Allianz adviser and former PIMCO chief The top economist said the central bank’s policy communication this week was seen as “confused and confusing,” and shared tweets mirroring a similar sentiment from journalists and experts including economist David Rosenberg.
“A sample from quite a set of reactions to what is seen as confused and confusing Fed communication,” El-Erian said in the tweet.
David Rosenberg, veteran economist”I’m thinking this move to signal two more hikes was a strategy to ensure that the stock market didn’t soar on the “pause” (okay, call it “skip”) as every Tom, Dick and Harry strategist was telling investors always happens when the Fed moves to the sidelines,” Rosenberg said in a tweet.
“The Fed is a genius. It found a way to tighten policy without tightening policy!” he added.
Jeff Gundlach, “Bond King” and DoubleLine CEO The Fed “was definitely hawkish in the rhetoric but obviously wasn’t hawkish in the action,” Gundlach told CNBC. “It seems like the unanimity of opinion that we need more rate hikes has been clear, but the path of rate hikes is all over the place,” he added.
“If the Fed follows the path that they’re talking about…they are going to break something,” Gundlach continued.
Steve Forbes, chairman of Forbes “Don’t be relieved by the Federal Reserve’s temporary pause in raising interest rates,” Forbes said in a Thursday video, adding that “unnecessary hard times are still ahead.”
“Its misbegotten attempts to slow the economy still pose a dangerous threat of recession,” he added.
Richard Clarida, global economic advisor at PIMCO”In some ways, they’ve telegraphed they’re going to pause or skip, and that’s what we saw yesterday. But I do agree, they did mark their projections in directions which showed much slower decline in inflation, much less decline in economic activity, and obviously they shifted up their view that potentially two more hikes are needed,” Clarida said.
“It was what I would call, an awkward but hawkish pause,” he added.
Whitney Watson, Global Co-Head of Fixed Income at Goldman Sachs Asset Management”Today’s decision to pause on policy actions was consistent with recent labor market and inflation data. But with the economy proving resilient, downside risks from banking stress fading, debt limit uncertainty behind us and inflation still hovering above target, we are unsurprised that the Fed has also hinted that ‘additional policy firming’ may be warranted, with the median projection for the Fed funds rate at the end of the year rising from 5.1% in March to 5.6%,” Watson said in a note.
Peter Schiff, chief global strategist at Euro Pacific Capital “Don’t believe the hype on the Fed’s hawkish pause on rates. If the Fed really was hawkish it wouldn’t have skipped this rate hike. There’s a good chance that the Fed’s next move on rates will be a cut, not because inflation is lower, but because the labor market finally cracks,” Schiff said.