Is The Fed Confusing or Just Confused?

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Today's topic: Is The Fed Confusing, or Just Confused? Mary Daly, President of the San Francisco Fed came out with mixed messages regarding the upcoming December 14 meeting. She stated that members of the Fed decided on a 50 basis point raise, but that it's still too early to decide and 75 basis points is still on the table, though they are worried about overcorrecting and causing a recession. Additionally, Loretta Mester, President of the Cleveland Fed, announced that she is open to slowing the rate of the rate hikes, but was unclear on what "slowing" would actually mean. The key thing we should look at for the December 14 meeting is the dot plot, the Summary of Economic Projections. The last time the Fed released a dot plot was September and it's already wildly out of date. The September projected inflation rate for 2023 was 2.6-3.5% and 5.3-5.7% for 2022- both projections will likely be higher in December. I don't think we should focus simply on the rate hike for the December meeting. The projections for 2023, which have been a contentious discussion within the Fed, will give us the full picture for what to look for in 2023. The Fed has to weigh a lot of confusing questions before delivering these projections. Inflation isn't coming down as fast as they thought, but it is coming down- is it coming down enough? Can they raise rates without causing a recession? Rate hikes of 50-75 basis points are on the table but when should they stop raising the rates? All these questions are leading to a Fed that sounds confusing, because the Fed is actually confused.

Jim is a seasoned stock picker with years of experience. Previously, he was the editor of Venture magazine, senior financial editor at Worth magazine, and from 1997 to 2012 senior markets editor at MSN Money. He's also the author of four books, most recently Juggling With Knives: Smart Investing in the Coming Age of Volatility.

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