Steven Wieting, Chief Investment Strategist & Chief Economist at Citi Global Wealth Investments, appeared on CNBC on 31 October 2023 to offer an in-depth analysis of the Federal Reserve’s latest monetary policy decisions and their implications for the economy.

Wieting began by stating that any pause in the Federal Reserve’s actions at this stage would be hawkish. He emphasized that Jerome Powell, the Fed Chair, has not ruled out further tightening of monetary policy. Wieting added that this ongoing uncertainty is a form of communicating restraint to the market. He also clarified that Quantitative Tightening (QT) is still in progress.

Wieting pointed out that housing price measures in the Consumer Price Index (CPI) have risen by 7.5% over the last 12 months but expects this trend to decline. He also noted that labor markets have been ahead of the economy. Wieting predicted a shift in policy next year that will be more protective rather than expansive.

Wieting referred to the CME tool, which indicates a 75% chance of a pause in the Federal Reserve’s actions in December. He also highlighted upcoming market-moving reports, including the Personal Consumption Expenditures (PCE) on 30 November and two more CPI reports before the December meeting. He stated that headline inflation is at 3.7% and that the Federal Reserve is likely to hit their target by the end of next year if they exercise patience.

Wieting emphasized that most of the data for the beginning of the fourth quarter were much stronger than the trend. He also discussed the range of unemployment over the last 18 months, which has varied significantly, from 105,000 to 904,000. Wieting believes the Federal Reserve is not overly concerned about financial conditions, despite the tightening. He pointed out that financial conditions have tightened considerably since 2021.

Wieting mentioned the “Magnificent Seven,” a group of stocks that have kept the global equity market from experiencing a full-year dip. He believes that this indicates that financial markets are better positioned than before.

In a nuanced conclusion, Wieting stated that monetary policy will become restrictive as inflation gets closer to 2% in the coming year. He added that if employment growth continues to fade, a condition not yet observed, the Federal Reserve will consider their policy too restrictive. He clarified that a move to a more restrictive policy would only happen in the case of a complete economic collapse, which he does not foresee.

The Federal Reserve maintained interest rates at 5.25%-5.50% during its FOMC meeting in September 2023, a move seen as a “hawkish hold” that offered a respite to the beleaguered banking industry and a sluggish equities market. Analysts anticipate possibly another rate hold by year’s end, contingent on upcoming economic indicators. The Fed’s October FOMC meeting starts today and concludes tomorrow.