In case you missed it, you should know the Federal Reserve yesterday raised interest rates by 75 basis points.
Now, the Fed's benchmark rate is the highest it's been since 2008.
Remember, this rate influences borrowing costs for all kinds of consumer loan products. So higher rates mean you're paying more for credit cards, auto loans, and mortgages.
It also means we may be closer to a recession (if we aren't there already).
The thinking goes like this: The more the Fed raises rates, the less money people will spend, so the economy will "cool down." But if the Fed gets too aggressive, it risks cooling the economy too much — a.k.a., a recession.
To make sense of all this Fed talk — and better explain it here in Opening Bell — I caught up with a veteran Fed watcher last night.
1. In his Wednesday press conference, Chairman Jerome Powell reiterated the central bank's commitment to bringing down inflation, made evident by the three-quarter point move.
In his view, policymakers haven't overdone it with rate hikes. Powell said that a "sustained period of below-trend growth" will likely be needed to lower inflation, and the Fed must avoid the mistake of not doing enough.
For those who haven't studied Fedspeak, here's a translation: It'll likely take a recession to meaningfully bring down inflation.
Treasury yields shot higher during his comments, and stocks gyrated before closing steeply lower on the day.
Lundy Wright, senior vice president at Weiss Multi-Strategy Advisers, has been keeping tabs on the Fed for decades. He told me on a phone call last night how Powell seemed to signal that the pace of tightening would ease, but that they would continue for longer.
"We're heading into a less data-dependent Fed, in terms of a month-to-month reaction, and a Fed that's hoping to observe and aggregate data over a longer horizon before they act," Wright said.
At the same time, though, Wright maintained that a pause won't be coming anytime soon, as Powell said in as many words, and that the central bank will be taking aim at jobs moving forward.
"There's no pivot," Wright said. "The Fed indicated that, effectively, a step down is possible if not probable, but because they elevated the terminal rate, no one can embrace a real pivot."
Powell said himself the Fed aimed to balance out the robust labor market.
To translate Fedspeak again: The Fed wants to increase unemployment.
"It is very premature to think about pausing," according to Powell. "We have a ways to go."
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