Fed chair: 'We have a ways to go'

By Allison Morrow, CNN Business

The Fed hath spoken.

The Fed’s 75-basis-point move was basically a foregone conclusion. And the central bank delivered, announcing it would raise interest rates once again by three-quarters of a percentage point — its fourth straight move of that size since it began trying to tame inflation in earnest this spring.

So what did we learn from Chairman Jay Powell’s closely watched speech?

A few highlights:

Markets initially shot up when the Fed released its policy decision, which contained a new bit of verbiage that, in the wonky world of Fed-watching, counts as scintillating: “In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”

Traders seemed to read that as: Don’t worry, you guys, the worst is almost over…

“First, the markets were teased the market with the statement about the possibility of smaller future rate hikes, then Powell threw cold water on that idea by indicating the ultimate final rate level could be higher than first thought,” said Dr. Michael Walden, a William Neal Reynolds Distinguished Professor Emeritus at North Carolina State University and a regular contributor to WRAL TechWire.

Fed makes history with fourth consecutive three-quarters point rate hike

But then…

But the party was short-lived.

Powell took the stage and promptly threw cold water on any Wall Street hopes for a near-term pivot toward monetary easing with statements like:

“It’s very premature in my view to be thinking about or talking about pausing our rate hike. We have a ways to go.”

That caused a bit of a market reversal.

“Chairman Powell’s comment at his press conference that the “terminal rate” for the federal funds interest rate will likely be higher than initially thought caused a big reversal in the stock market, with the Dow down 500 points,” explained Walden.

The Dow ended the day down more than 500 points, or 1.6%. The S&P 500 sank 2.5%, and the Nasdaq fell 3.4%.

The Fed is operating on data that’s offered a murky view of the economy’s health in recent months. On one hand, the housing market is cooling off markedly, but higher borrowing costs so far haven’t made a dent in inflation. Part of the inflation problem, in the Fed’s view, is that the labor market is a little too strong, putting upward pressure on wages, which turn the heat up on demand.

Look ahead: On Friday, analysts will be poring over the government’s October jobs report, which is expected to show the economy added another 200,000 positions in October — down from the previous month but still historically high. That may reassure the Fed that there’s room to keep rate hikes going without triggering a recession.

“My forecast that the federal funds rate could end up at 6% or 7% now looks – at least to me – more likely,” said Walden.