Monetary policy

A soft landing of monetary policies

This Wednesday, the FED is mostly likely to follow the steps taken by the Bank of Canada, 1) to raise interest rate by a small step of 25 bps, and 2) to announce pause of rate hikes and to allow settlement of the transient of inflation dynamics.

The FED shall acknowledge inflation downward trend, thanks to normalizing supply chain, decreased commodity and housing prices and more importantly lower wage pressures.

I think a 25 bps is really not necessary any more but it is more for the purpose of a smooth transition, or a “bump-less transfer” in process control terminology. I can see both Bank of Canada and the US FED are likely to cut rates as early as Q3 2023 if not Q2.

The FED however, will maintain tough talk for at least a few more months. After all, monetary policies are 99% communications and 1% actions as Bernanke once said.