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Fed Raises Rates Despite Data

By VWArticles. Originally published at ValueWalk.

In her note below, Chief Economist at Stifel Fixed Income, Lindsey Piegza, Ph.D., offers insight on today’s from the Federal Reserve System decision to raise rates despite support from data and to rebuild the monetary policy tool.

In part she says, “the Fed’s decision to move forward with a second-round increase this year appears to be motivated by both a push from the market with today’s rate hike fully priced in … [and] a desire to rebuild the monetary policy tool kit.”

Federal Reserve System  Rebuild the monetary policy tool
NikolayFrolochkin / Pixabay

As expected, the Fed opted to raise rates 25bps, from 1.00% to 1.25%. This is the second increase in 2017 and the third in the past seven months.

Bottom Line on the Federal Reserve System: On the heels of additional “soft” inflation data released this week, the Fed’s decision to move forward with a second-round increase this year appears to be motivated by both a push from the market with today’s rate hike fully priced in, according to Bloomberg, as well as a desire to rebuild the monetary policy tool kit. Justification from the data, on the other hand, as the economy shows lingering signs of weakness carrying over from the first-quarter amid still-sluggish consumer activity, modest labor market gains and cooling inflation, appears to be the missing component that would normally be at the forefront of an accelerated rate path. In other words, the Fed’s decision to raise rates today, while expected, appears to be little motivated by the data, leaving the future pathway for rates even more uncertain at this point. Acknowledgement of the recent decline in prices within the statement as well as with a modest downward revision to the forecast, however, appears to be taking a backseat to the Fed’s general optimism for improvement in growth and inflation. Without sizable and clear additional weakness, the Fed appears steadfast in their commitment to one additional rate hike this year. Once again, the Fed’s credibility is on the line as the data argues for quite an opposite position.

The post Fed Raises Rates Despite Data appeared first on ValueWalk.

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