Fed maintains interest rates, Warsh anticipates procedural changes and analysts disagree on the next step
In a decision without surprise in the vote, but with two divergent votes, President Kevin Warsh detailed his reading of the economy and anticipated procedural changes.
BY THE X-TRADER NEWS NEWSROOM · REPORTING FROM CNBC · 2 MIN
The Federal Reserve decided to keep its benchmark interest rate unchanged on Wednesday. According to CNBC, the vote took place as the market expected, but the meeting of the Federal Open Market Committee was not without surprises, especially due to the two divergent votes, which one of the analysts interviewed by the broadcaster associates with a tightening bias.
In the press conference that followed the decision, the bank's president, Kevin Warsh, explained part of his reasoning about the current stage of the American economy and how this reading guides monetary policy. For those who follow the Fed closely, however, the most relevant news may have been something else: the announcement of upcoming procedural changes. The CNBC material used in this report does not detail what these changes are.
For Phil Camporeale, chief investment strategist at JPMorgan Wealth Management, the Fed is opting for patience. In his opinion, the institution prefers to wait for more information before defining what the appropriate level of interest should be, at a time when uncertainty is growing with recent geopolitical developments.
Seema Shah, chief global strategist at Principal Asset Management, sees the same picture from another angle. She claims that the bank has time on its side, but that the direction of the movement remains clear, as the Fed would still be undoing part of the cuts made last year. In her reading, the two divergent votes reinforce this inclination, and that is why she projects an interest rate hike in December and another at the beginning of 2027.
Thomas Simons, chief United States economist at Jefferies, avoids classifying Warsh's communication as softer or harsher. For him, the central bank's reaction is not a binary choice. According to the same analysis, the market has already adapted to the president's style, although there may still be some distance until everyone is on the same page.
What changes for the investor
At this meeting there is no change in interest rates to price, but rather a dispute over the period in which interest rates will remain high. For those who operate interest rates, the dollar, the stock market and the Nasdaq, the central point is the expectations curve. If the new high reading prevails, the cost of money tends to stay high for longer, which tends to weigh more on growth stocks, many of which are concentrated on the Nasdaq, and could support the dollar. If patience prevails, this scenario loses strength. In this editorial's view, the more predictable the central bank's communication, the lower the risk premium that the investor needs to demand, and well-explained procedural changes can help in this regard. This article is not a recommendation to buy or sell assets.
Automatically translated from Portuguese.
