US Federal Reserve extends “pause” on rate hikes

The US Federal Reserve (the Fed) [link] decided to not raise rates in a unanimous vote, but said that it couldn’t rule out an additional hike before the end of the year. The Fed’s Chairman, Jerome Powell, said that they’re “not confident” that financial conditions are restrictive enough to finish the fight against inflation, but they’re also “not confident” that the Fed’s actions haven’t already done enough. 

 

MB bottom-line: Most informed observers thought that this was what the Fed would do. The Fed is interested in sitting back to observe the impact of the rapid interest rate raises that it implemented over the past 12 months. The Fed noted that the labor market has been surprisingly strong (which can be an inflationary signal), and that it is watching the bond market very closely (rising long-term yields could represent an expectation that investors expect inflation to be high or higher-than-expected in the future). What does this mean for us? The Fed’s pause takes a lot of pressure off of the BSP’s Monetary Board; thanks to the off-cycle rate hike that it announced last week, the interest rate differential will remain stable, and the PHP/USD exchange rate is retreating slightly from Eli Remolona’s P57/$1 redline. The BSP might have other reasons to hike, but it doesn’t look like it needs to play defense for the Peso at its next meeting on November 16.

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