Moneycontrol Pro Panorama | Fed on the fence

US Fed Chair Jerome Powell

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The 25 basis point rate hike by US Federal Reserve (US Fed) that lifted benchmark rates above 5 percent, is the 10th successive one and in-line with expectations. Still, it leaves several questions unanswered.

Does this mark the end of the rate hike cycle? Will the central bank pause or pivot hereon? Is the stubborn inflation reined in? Are we seeing signs of the US tipping into recession? Investors who hoped to find an answer to such questions in Wednesday’s policy decision are still unsure.

Some market veterans see clues of a pause ahead in the June meeting. Omission of a statement that “some additional policy firming may be appropriate” (stated in the previous meet) points to the end of rate hikes. On another note, the banking crises that cannot be brushed aside as more skeletons seem to be tumbling out, may keep liquidity tight. Risks arising from the crisis would hopefully be kept in check by the Treasury.

However, Fed Chair Jerome Powell is having to walk a tight rope balancing inflation and a soft landing. Powell’s remarks that it is hard to tell if the rate hikes are “sufficiently restrictive” and that further decisions will hinge on economic data, leave things ambiguous.

Complicating matters for analysts and policymakers is that US unemployment is still near the lowest since the 1960s. Data from ADP Research Institute on Wednesday showed private payrolls just posted their largest increase since July 2022 -- something that would keep inflation elevated. In this Bloomberg article, Jonathan Levin writes that the Fed retained its hawkish bias, which should disappoint those who think that there are rate cuts round the corner.

The uncertainty is what is also keeping financial markets jittery. They are likely to remain so until Powell signals that all is well. Talking of Indian equity indices, analysts believe that the recent rally has taken stock valuations beyond reasonable levels. Read Anubhav Sahu’s article, which tells investors that it is an appropriate time to start portfolio construction.
Investing insights from our research team

Titan Company: In-line results, strong outlook

Kotak Mahindra Bank – Why we are turning equal-weight after a very strong quarter

CSB Bank — Gold loans add shine to the performance

Tata Steel: Time to turn optimistic?

Havells India: Valuation faces headwinds as top-line growth moderates

PI Industries: Foray into high-margin pharma CDMO business adds to our conviction

KEI Industries: Higher valuations could cap upside

Home First Finance – A good bet to build investing plinth in affordable housing

What else are we reading?

Go First’s bankruptcy brings back questions about Indian banks’ lending acumen

Giving up China-nirbharta is easier said than done

Start-up Street: ‘Boring’ businesses can turn into successful start-ups

Chart of the Day: BOT projects could ease NHAI’s debt servicing woes

Erring auditors may escape direct heat from SEBI’s wrath

Geoffrey Hinton and the dark side of AI

US debt ceiling crisis: a self-inflicted wound

Unseasonal rains and the lashing effect

'Getting close': Federal Reserve chair seeds expectations for pause in interest rate rises (republished from the FT)

Labour Law Reforms: Tamil Nadu reversing flexible work shifts is lost opportunity for business, workers, jobseekers

Climate Change: A torrid summer risks stalling Asia’s climate goals

Tesla wanted an EV price war. Ford showed up

Technical Picks: Copper, Tata Power, Gold Bees and Chambal Fertilisers (These are published every trading day before markets open and can be read on the app).

Vatsala KamatMoneycontrol Pro