Likely Peak

However, the economic outlook is uncertain

Summary: The FOMC met last week and left its policy rate unchanged. Jerome Powell signaled that it will likely be appropriate to begin dialing back policy restraint at some point this year. Although inflation remains above trend, the Fed seems slightly more focused on downside risks to growth from restrictive policy.

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Macro

The Fed’s policy rate is likely at its peak

“We believe that our policy rate is likely at its peak for this tightening cycle and that, if the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year. The economic outlook is uncertain, however, and we remain highly attentive to inflation risks. We are prepared to maintain the current target range for the federal funds rate for longer, if appropriate. We know that reducing policy restraint too soon or too much could result in a reversal of the progress we have seen on inflation and ultimately require even tighter policy to get inflation back to 2 percent. At the same time, reducing policy restraint too late or too little could unduly weaken economic activity and employment.” – Federal Reserve Chair Jerome Powell

Inflation is lower but still above trend 

"...with regard to inflation, we still see an inflationary environment. It's 4% now. It was double digits last year. And long term, it's been kind of 2% to 3%. And so hopefully, we're headed in the long-term direction as we look at next year, we'll certainly give guidance in June on what that exactly looks like." - General Mills (GIS 0.00%↑) CEO Jeff Harmening

"We will get aggregate inflation down to 2% over time, we will. I will assume that we will continue to see goods prices coming into a new equilibrium where they're going down perhaps not as quickly as they had been earlier this year, where housing services inflation will come back down as current market rents are suggesting will happen, where non-housing services will move back down. Some combination of those three things. It may be different from the combination we had before the pandemic, will be achieved and will bring inflation down to 2% sustainably." - Federal Reserve Chair Jerome Powell

Consumer spending remains healthy

"We continue to see early consumer spending. So I feel like what we set ourselves up for in our last earnings call is what seems to be playing out. We had talked about in the last earnings call about how there was a little bit of a weather effect, which took place in the first half of -- actually the first 3 weeks of January, but then we had seen this reversal, which took place in the fourth week of January. And the reality is weather aside, really, what we're seeing is from an overall standpoint, consumer spending to be healthy, very much in line with our expectations." - Mastercard (MA 0.00%↑) CFO Sachin Mehra

“Our consumers are in a very healthy position. Remind you that the Delta Consumer is -- has household earnings on average of greater than $100,000 a year in terms of earnings. And that consumer, which represents 40% of the consumers in our country accumulated over $30 trillion. That's with a T, trillion of worth household worth from pre-COVID to where they stand today” - Delta Air Lines (DAL 0.00%↑) CEO Ed Batian

Small businesses seem to be in a good position 

"It's one of those things where when I look at the small businesses, I'm always amazed at the release of the small business. They are in a better position where they were a year ago -- sorry, pre-pandemic of our cash balances are down about 11% versus a year ago. They're still up pre-pandemic. They're having an easier time recruiting, and retaining talent. Inflation is more stable. So, when you look at the data, they're in a pretty good position." - Intuit (INTU 0.00%↑) CFO Sandeep Aujla

But should the Fed be worried about staying too restrictive for too long? 

"Meanwhile the consumer is very resilient and that's providing an anchor to windward That the fed has latitude that a lot of places don't have that they can be Hold the restrictive and let the economy really catch up But they have to be mindful of the change at some point that consumer will slow down and they have some And so last year to been 10 percent growth this year in the fall, 5 percent now it's down to 3 to 4 percent and they've got to be careful. They don't overshoot. So this is the tension we're in right now, which is this resilient economy." - Bank of America (BAC 0.00%↑) CEO Brian Moynihan

The Fed is planning to be patient

“I guess I'd put it this way; if you look at the incoming inflation data that we've had for January and February, I think very broadly that suggests that we are right to wait until we're more confident. So I think, I didn't hear anyone dismissing it as not information that we should look at or anything like that. So I think generally speaking it does go in the direction of saying yes, it's appropriate for us to be careful as we approach this question” - Federal Reserve Chair Jerome Powell

“If we have an economy that is growing above potential, and we have an economy where unemployment is at levels that were deemed to be unimaginable without pricing pressures, and if we have an economy where inflation is moderating ... those are good things. That gives us space for patience…The economy continues to deliver surprises and it continues to be more resilient and more energized than I had forecast or projected. And so as a consequence, I’ve sort of re-calibrated when I think it’s appropriate to move.” - Atlanta Federal Reserve Bank President Raphael Bostic 

International