What’s Next for the Fed? Former Vice Chair Weighs In

Roger Fer­gu­son – for­mer vice chair­man of the Fed­er­al Reserve – has offered his analy­sis of the cen­tral bank’s lat­est inter­est rate hike and the press con­fer­ence that fol­lowed on Wednesday.. 

Fer­gu­son believes that the Fed and the mar­ket do not agree on what the cen­tral bank will do next. The lat­ter, he claims, is bet­ting that the for­mer will be forced to reverse its rate hikes soon­er than it expects. 

Is the Pivot Coming?

Speak­ing to CNBC on Thurs­day, the for­mer vice chair agreed with his inter­view­er, Michael San­toli, that chair­man Pow­ell passed up many oppor­tu­ni­ties to be more hawk­ish when speak­ing to reporters after FOMC. 

“[The Fed] was very clear about one maybe two more hikes to come because they see the process of infla­tion slow­ing. The mar­ket chose to ignore the pos­si­bil­i­ty of two,” said Ferguson.

Fer­gu­son added that the mar­ket believes there will be a deep enough reces­sion this year that the Fed is forced to ease inter­est rates. Oth­er out­side observers includ­ing the Unit­ed Nations and JP Mor­gan have cast sim­i­lar pre­dic­tions in recent months. 

While Bit­coin was ini­tial­ly stag­nant fol­low­ing the Fed’s 25 basis point raise on Wednes­day, it ral­lied along­side both stocks and cryp­to after Powell’s com­ments on the hike. The chair­man said the Fed was keep­ing a close eye on jobs data to deter­mine its future mon­e­tary pol­i­cy, but that its out­look sug­gests that there won’t be any rate hikes this year. 

At times, how­ev­er, his tone seemed less deci­sive. Gold­man Sachs chief oper­at­ing offi­cer Gary Cohn believes Pow­ell seemed to “go back and forth giv­ing you both sides of the argu­ment,” accord­ing to CNBC. 

“This is a dif­fer­ence of fore­casts,” Fer­gu­son con­tin­ued. “The mar­ket thinks infla­tion is com­ing down, that its gonna be incum­bent on the Fed to cut lat­er this year. The Fed’s fore­cast is one of a bumpy, but rel­a­tive­ly soft­ish land­ing, with growth a lit­tle bit below trend. “

Wharton Prof: Powell Gets it

Speak­ing to CNBC’s Melis­sa Lee on Wednes­day, Whar­ton eco­nom­ics pro­fes­sor Jere­my Siegel said the Fed is final­ly ana­lyz­ing mar­kets in a more “two-sided” manner. 

“He acknowl­edged the hous­ing sec­tor is real­ly a faulty indi­ca­tor,” said Siegel, refer­ring to housing’s delayed response to come down with inter­est rate hikes, thus mak­ing infla­tion look worse than it real­ly is. “Infla­tion has come down absolute­ly dramatically.”

Siegel is hes­i­tant to pre­dict whether the Fed will imple­ment one or two more rate hikes. That said, if the labor mar­ket breaks in any capac­i­ty, he doesn’t believe any more rate hikes will follow. 

“All we need is one neg­a­tive pay­roll month,” he said. “I think that real­ly changes the whole nar­ra­tive, because [Pow­ell] said that’s the last thing that’s drum tight. 

In March 2022, Siegel urged the Fed to start hik­ing inter­est rates aggres­sive­ly to quell infla­tion, for fear that Bit­coin – a fixed sup­ply cryp­tocur­ren­cy – could “take over.” The lat­est CPI report at the time had annu­al infla­tion clocked in at 7.9%, ver­sus 6.5% in December.