Fed hikes again but pause coming – Fidelity reacts to yesterday’s FOMC report

With much debate about whether the Fed would or wouldn’t hike base rates given the latest banking sector concerns the decision to hike clearly has implications for the health of US and global economies. Commenting on yesterday’s FOMC decision, Salman Ahmed, Global Head of Macro & Strategic Asset Allocation at Fidelity International said:

“At the Fed meeting, the FOMC hiked fund rates by another 25 basis points and indicated a data dependency-driven approach going forward, though ruled out an unequivocal pause signal. Chair Powell was balanced in his communication and also indicated that financial stability remains intact, and conditions have improved since March. As we have been noting, we are now passing through the peak of the tightening cycle and the transmission channel is likely to be dominated by the extent of credit tightening in the pipeline. Given the current persistence of inflation and the super tightness in the labour market, a higher for longer signal is likely to come through. However, whether the Fed can deliver that will depend on the economic picture and here we think that a cyclical recession remains the high likelihood scenario.”