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“ ‘The Fed chair, and I mean this as nicely as I can say it, had the most counterproductive press conference I can ever remember last Wednesday.’ ”
Lawrence Lindsey, former Federal Reserve Governor and chief executive officer at The Lindsey Group, said the central bank’s benchmark interest rates are not restrictive enough to battle the highest price pressures in 40 years.
“We’re not restrictive. We’re probably neutral, but neutral doesn’t cool things off,” Lindsey said in an interview with CNBC’s “The Exchange” on Monday.
The Federal Open Market Committee raised the fed-funds rate by 25 basis points, or 0.25%, to a target range of 4.50% to 4.75% last Wednesday, while once again stressing that it has more work to do in its efforts to bring inflation under control.
However, in the news conference following the decision, Fed Chair Jerome Powell said financial conditions had tightened significantly over the past year. He also acknowledged for the first time that “the disinflationary process has started.”
Traders took that as affirmation that the rate-hike cycle is nearing its end, with cuts in store by year-end. They projected a 70% probability that the rate will peak at 5-5.25% by May, followed by almost 50 basis points of cuts by the end of 2023, according to the CME’s FedWatch tool.
“The Fed chair, and I mean this as nicely as I can say it, had the most counterproductive press conference I can ever remember last Wednesday,” Lindsey said, adding that the central bank needs to stick to its plans to continue hiking rates to above 5%, or “maybe a little bit higher.”
Investors are also awaiting Powell’s appearance at an event Tuesday sponsored by the Economic Club of Washington, D.C., coming just a week after the his press conference.
“I think what he’s got to do tomorrow — because I’m sure he didn’t mean for that reaction to occur — he’s got to recalibrate, he’s got to recant. He’s got to say, ‘look folks we have to have higher real interest rates and it’s as simple as that,” Lindsey said.
U.S. stocks ended modestly lower on Monday after Friday’s employment report showed an unexpectedly strong surge in January nonfarm payrolls, which reversed Wall Street’s perception that the end of the Fed’s rate increases is near. The S&P 500
SPX,
lost 0.6%, while the Dow Jones Industrial Average
DJIA,
declined 0.1% and the Nasdaq Composite
COMP,
fell 1%.
