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MarketScape · 11.02.23

Are We There Yet?

The Fed extended its pause, but emphasized that the potential for future rate hikes will depend on subsequent data. Head of Global Macro for Global Fixed Income Antulio Bomfim, Ph.D., examines what it means for investors.
  • Markets & Economy
  • Federal Reserve
  • Cash Insights
  • Fixed Income Insights
Head of Global Macro, Global Fixed Income
Key Points
What this is
We examine the Federal Reserve's decision to keep its policy rate steady and Fed Chair Jerome Powell's comments after the decision.
Why it matters
Elevated interest rates have impacted returns in the stock and bond markets.
Where it's going
We don't think investors should assume that the Fed is done with rate hikes. It likely depends on the direction of inflation and economic data.

The  kept its target range for the federal funds rate unchanged this week, extending the pause that was announced in September.  During his press conference, Chair Jay Powell was asked several times if he felt that the Committee was done raising rates.  We took his answer to mean “Maybe so, maybe no!”  We could get a more definitive answer following the next Committee meeting, in mid-December, depending on how the economy evolves between now and then. While yields edged lower during Chair Powell’s press briefing, we believe investors would do well to stay alert to the possibility of at least one more rate hike in this cycle.  Let’s take a closer look.


Powell said that the Committee is “not confident yet” that its policy stance is “sufficiently restrictive” to address the inflation problem. He noted this has been the main question facing the Committee.  He acknowledged that, despite recent progress, inflation remains too high, and the labor market is “still very tight.”      


We read Powell as suggesting that three main factors will help the Committee determine whether its policy is “sufficiently restrictive.”  Not surprisingly, the first is inflation. He noted that the FOMC is committed to achieving a policy stance that is “sufficiently restrictive to bring inflation sustainably down to 2 percent over time.”  Secondly, he reiterated that the Committee is “attentive to recent data showing the resilience of economic growth and demand for labor.” He said that continuing upside surprises “could put further progress on inflation at risk.” The third factor is financial conditions, which have tightened in recent months and could potentially help cool off economic growth and the labor market.


Investors keen on the direction of monetary policy should take Powell at his word, rather than assume that two consecutive no-hike announcements amount to .  We will be watching the data on inflation closely.  Powell noted that “a few months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably.”  We will also be attentive to data on economic activity.  Powell stated that further rate hikes could be warranted if the data show growth as remaining “persistently above potential” or if the data indicate that “tightness in the labor market is no longer easing.”  Lastly, we will stay focused on financial conditions.  Powell suggested that if financial conditions were to tighten persistently, they could, in effect, diminish the need for further rate hikes.

Main Point

What to Watch For

We think that investors keen on the direction of monetary policy shouldn't assume that two consecutive no-hike announcements will amount to no further hikes. We will be watching closely the data on inflation, the economy and financial conditions.


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Antulio N. Bomfim

Head of Global Macro – Global Fixed Income

Antulio Bomfim, head of global macro for the global fixed income team, oversees interest rate strategy, systematic volatility, liquidity and monitoring of systemic risk globally. He is also responsible for the firm’s global liquidity management business.

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