Fed Says Not Pausing, Just Skipping a Rate Hike— why that’s bad
The case against pausing.
TL/DR:
Some data justifies the Fed pausing hikes, but not really.
We show why that’s a very bad idea.
Inflationary outliers are not in the Fed’s control (remember the 2% target?)
China’s choppy recovery figures big in the outcome
The title above says it all. The Fed wants you to know they may not hike rates in June and maybe not even in July either. But they do not want you to call it a “pause”. To call it that implies hikes may be permanently put on hold. They wish to call it a skipped hike. In this way they convey there will almost definitely be a continuation of the rate hike regime as programmed soon.
Fed word-smithing implies: Either you believe they mean what they say and are trying to telegraph this to us, or you believe they are done hiking and are trying to remain tough looking.
This is irrespective of the Fed actually being right in their assessments, which is not a given anymore, or ever…
The Case for “Skipping” Hikes
Two Federal Reserve governors, in line with Fed Chair Jerome Powell's previous statements, expressed their support for skipping one rate hike in June rather than simply pausing rate hikes. This is likely an attempt by the Fed mainstream to convince their more hawkish members to capitulate and get dovish.
Nomura:
Two Fed governors stressed that they favored skipping one rate hike, not pausing rate hikes, in June, echoing Fed Chair Jerome Powell’s statement on 19 May. The Fed mainstream apparently intends to convince the hawks with this logic.
It suggests that the majority of members anticipates ongoing negative factors for the economy with lessening inflation and intends to pause rate hikes, as they would not skip a rate hike in June if they expected to resume hikes in July1.