What Investors Can Expect as Fed Rate Hikes Slow
Investors responded with great enthusiasm on Wednesday when Federal Reserve Chair Jerome Powell offered his latest comments on the current status of U.S. monetary policy. In particular, Powell's assertion that the Fed could choose as soon as its December meeting to slow down the pace at which it has increased interest rates so far in 2022 came as welcome news for those who had feared that the central bank was determined to tighten too far.
Even though stock markets soared in the hours following Powell's comments, the true impact of a slower pace of tightening is far less certain. Determining the optimal course of monetary policy to balance price stability and economic growth is nearly impossible to accomplish. It's entirely possible that slowing the pace of rate increases in the near future could achieve the best long-term results, but investors shouldn't rule out the possibility that prematurely backing off of its aggressive stance toward policy tightening could make inflation more persistent.
For long-term investors, preventing entrenched inflation is arguably the most important goal for the central bank. Therefore, that's the perspective from which market participants should evaluate any policy move from the Fed.
Source Fool.com
