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.