A divided Fed hides behind fuzzy language

A screen displays Federal Reserve Chair Jerome Powell speaking as a trader works on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., November 2, 2022. REUTERS/Brendan McDermid

LONDON, Nov 24 (Reuters Breakingviews) - The Federal Reserve does not quite know when to stop hiking interest rates. A key question for investors wagering trillions of dollars on bonds and currencies is what the U.S. “terminal” rate is – the resting place for this cycle of monetary tightening. Those hoping for a clue from the central bank, however, have found themselves debating the meaning of “various”.

The word appeared in the minutes for the November meeting of the Fed, which were released on Wednesday. “Various” members of the 12-strong Federal Open Market Committee, the document said, noted that their assessment of the ultimate rate “was somewhat higher than they had previously expected.”

That could signal bigger rate rises ahead. The problem is that “various” is not in the informal, and carefully studied, glossary the Fed uses to telegraph its decisions to the market, unlike expressions like “almost all” or “most”, making the message hard to read. The choice of words looks deliberate, given the huge uncertainty around the U.S. economy. But it means that economists and traders parsing Fedspeak for a living will be left guessing just how many officials favour a terminal rate above the 5%-5.25% currently expected by the market. The Federal Reserve itself seems equally uncertain. (By Francesco Guerrera)

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(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)

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