A pivot from the Federal Reserve could be coming sooner than most are anticipating, even as the labor market continues to show strength.
What Happened: According to a tweet from Fox Business’ Charles Gasparino on Thursday, BlackRock Inc (NYSE: BLK) is telling financial advisors that the firm is anticipating “pivot language” at the Fed’s upcoming meeting on Nov. 2.
“They expect Powell to announce a 75 BP FF hike followed by two smaller ones and a pause to get us to around 4.75%,” Gasparino said in the tweet.
BlackRock’s apparent shift in expectations aligns with Wharton Professor of Finance Jeremy Siegel’s comments from earlier this week.
“I think there is going to be a pivot soon,” Siegel said Tuesday on CNBC’s “Squawk Box.”
“And I don’t mean that that means they’re not going to increase. I think it’s going to be 75 basis points next week. But I think they are going to acknowledge that there has been a tremendous amount of progress made on inflation.”
When asked if he thought the Fed would raise rates by another 0.75% in its December meeting, he replied: “I hope not. I don’t think it’s needed.”
The key thing to watch for is a statement from the Fed acknowledging that progress has been made on inflation, which will signal that at some point the central bank can afford to pause in its aggressive response, he said.
“That’s what the market is looking for. What scares the market the most, is the [potential for the Fed to] stay this tight through 2023, which I absolutely think would be really a disaster for the economy,” Siegel said.
Why It Matters: The U.S. Bureau of Economic Analysis reported an advanced estimate of third-quarter gross domestic product (GDP) on Thursday showing that U.S. economic growth rebounded last quarter.
The Labor Department also released new data Thursday showing that U.S. initial jobless claims ticked higher last week, but still remain near historically low levels.There are two monetary policy decisions remaining in 2022. Thursday’s data signals that another 0.75% rate hike is likely coming next week, but if the Fed shifts from its aggressive stance at all following the decision, the market could rally.
On the other hand, Fed Chair Jerome Powell has continually reaffirmed the central bank’s commitment to bringing inflation back down to its 2% goal. In a press conference following the most recent decision on rates, Powell noted the Fed will keep fighting inflation until it’s “confident the job is done.”
Photo: Federalreserve from Flickr.
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