Door opens on ‘last hike’ narrative

With a previous reference to future increases removed, the door is open to a "last hike" narrative, says Geoff Phipps, a portfolio manager and trading strategist at Picton Mahoney Asset Management. In his comments on the 25 basis point interest rate hike by the US Fed last week, he says its press release maintained a positive view of the economy and took a fairly complacent/confident view of the US banking system, further evident in comments that conditions in the banking sector have 'broadly improved.’ “The focus for many prior to the announcement was how much would Jerome Powell, chair of the US Fed, “hammer home the message that late year cuts are not in the cards," says Phipps. However, he reinforced a ‘comfortable’ view of the state of the overall economy, including the current lending and deposits environments. He reiterated several times that his outlook for recession was biased to the mild side, if any, and that views of members of the Fed staff that are direr should be discounted. Another theme was the consistent pushback against the idea of rate cuts in 2023. Powell’s view is that inflation will fall slowly, so the base case is that it is not appropriate to cut rates until the data changes. And while it is possible for the data to change rapidly, it will require a high level of certainty that the changes in data are reflective of sustainable and real changes in the economy.