The US Federal Reserve is delivering a hawkish message to markets: We hear you, we see you, but you can't stop us — aggressive rate hikes aren't going away.
Wall Street seems to be listening. Markets now see an 86% chance of a three-quarter point hike at the September Fed meeting, according to the CME Group.
They're also swallowing their medicine — US stocks initially plummeted on Thursday morning as they grappled with new, hawkish comments from Federal Reserve Chairman Jerome Powell on top of a new three-quarter point rate hike from the European Central Bank. But by the end of the day, they had shrugged it off and markets closed higher.
What's happening: The Federal Reserve doesn't like to surprise financial markets with rate hikes, and so it's making its intentions fairly clear. At least eight Federal Reserve officials spoke publicly during this week's media blitz, and they delivered similar lines.
One by one officials acknowledged the economic and market pain their hiking policy could inflict and then reiterated that for the time being they would keep on with their aggressive regime to fight pervasively high inflation rates.
At a think tank conference Thursday, Powell reiterated his position on staying the course.
"History cautions strongly against prematurely loosening policy," he said at the Cato Institute's 40th Annual Monetary Conference. "I can assure you that my colleagues, and I are strongly committed to this project and we will keep at it until the job is done."
His comments echoed Fed vice chair Lael Brainard's, who spoke at a banking policy conference in New York on Wednesday. "It is especially important to guard against the risk that households and businesses could start to expect inflation to remain above 2% in the longer run," she said.
Shifting course: Goldman Sachs, Bank of America and Nomura analysts all used this week's messaging as reason to raise their forecasts for the next Fed policy decision on September 21 from a half point hike to three-quarters of a point.
Data shows the economy has been making progress towards achieving the soft landing that the Fed is hoping for. Core and headline inflation were softer in July, commodity prices are falling, the dollar is strong, and supply-chain kinks are improving. The labor market is showing early signs of cooling off, and GDP growth is also slowing.
But Fed officials have suggested that this isn't enough. "Fed officials have sounded hawkish recently and have seemed to imply that progress toward taming inflation has not been as uniform or as rapid as they would like," wrote Goldman Sachs researchers led by chief economist Jan Hatzius in a note Thursday.
Known unknowns: Nothing is written in stone and a slew of economic and inflation data out later this month will guide the Fed's next moves. If next week's Consumer Price Index (CPI) report surprises to the downside, the Fed may consider a less aggressive rate hike.
"Although we move to a 75 basis point rate hike in September, we acknowledge there are risks to a smaller 50 basis point hike," wrote Bank of America analysts. "The Fed received some negative feedback on its messaging during the last blackout period, and it may be the case that participants feel like it is time to back away from effectively pre-announcing policy rate moves."
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