We will have to wait until March for the Federal Reserve to explicate its monetary predictions, but the central bank's announcement that it would raise the federal funds rate by a quarter percentage point made clear that markets got it wrong — again.
Reiterating its steadfast commitment to bring inflation down to the 2% benchmark, the announcement repeated the same refrain it has since the start of its tightening campaign:"The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.
The decisions announced for February and telegraphed in the future are perfectly in line with the Fed's prediction in December. At the end of last year, the committee estimated that interest rates would surpass 5% and stay there through this entire year. Well, interest rates are now just 25 basis points to 50 basis points away from that projection.
And yet, investors refused to believe the Fed. As late as Wednesday afternoon, markets had priced in some 50 basis points of rate cuts at some point this year. Even with unemployment too low and nominal wages too high,"experts" had once again deluded themselves into believing that Powell would bend to their demands and defy December's Federal Open Market Committee expectations.
Wall Street may be ready to declare victory on inflation, but luckily for the nation, the Fed is not. If Powell's press conference provided any promise for the rest of the year, the war between the two is nowhere near over.
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