When the Fed’s Suspected of Bluffing, It Has a Problem
If the central bank can be misleading about its interest-rate intentions, where else might it shade the truth?
Do the markets think he’s bluffing?
Photographer: Kevin Dietsch/Getty Images North AmericaOn Wednesday Federal Reserve Chair Jerome Powell announced the expected increase of 25 basis points in the bank’s policy rate, and reiterated that “ongoing increases” will be needed to get inflation back under control. Investors aren’t convinced. In fact, if you wanted to be harsh about the markets’ reaction to Powell’s statement, you’d say they laughed in his face.
The prices of stocks and bonds moved sharply up on the news, with the riskiest assets doing especially well. As many analysts pointed out, investors are clearly betting that the Fed isn’t going to do what it says. The interesting question is whether this matters — and the answer to that depends on another question: Why don’t they believe the Fed?