Federal Reserve:Meetings/2023 March 22
Market Expectations
- Market is expecting 0.25 bps with a 86% probability.[1]
| INSTITUTION | FOMC RATE HIKE ESTIMATES |
| NOMURA | - 25 BPS |
| BARCLAYS | 0 BPS |
| GOLDMAN SACHS | 0 BPS |
| BMO | 25 BPS |
| CIBC | 25 BPS |
| CITI | 25 BPS |
| BLOOMBERG | 25 BPS |
| JP MORGAN | 25 BPS |
| GURGAVIN CAPITAL | 25 BPS |
| MORGAN STANLEY | 25 BPS |
| RBC | 25 BPS |
| KPMG | 50 BPS |
| MEDIAN | 25 BPS |
Commentary
Economist David Rosenberg[2]
- FED is probably will do 25bps as the market is signaling, but he thinks this will be a mistake
- ECB doing 50 bps could have given the green light to the FED to hike
- This will lead to tightening in lending guidelines, which is problematic for a economy driven by credit
Bleakley's Peter Boockvar [3]
- FED will do 25bps, but Powell will imply a pause after that
- The FED should not hike more, and should evaluate the effects of what have already done
Jim Bianco: [4]
Many think the Fed wants to project the banking system is not bad enough to halt their hiking campaign, so they will hike. This no longer works, and the Fed knows it. If the market is worried and wants a hold (or cut), and the Fed hikes, the market is not assured. Instead, the move would immediately and violently blow up in the Fed’s face. So this is not about “faking out” the market into thinking all is ok. It is about matching the policy to the mood.
Meeting Results
The FED decided to do a rate hike of 0.25 bps, to raise the target range for the federal funds rate to 4.75% to 5%.[5]
The FED's new projections show the same terminal rate as before at 5.1% in 2023, and a bit higher at 4.3% in 2024.
Assessment: The fed recent data and release makes for the scenario that they will continue with their plan to keep rates higher for as long as they can, with no rate cuts in 2023, giving the inflation problem the priority at the moment.
The markets continue to be skeptical of this result, pricing more than 1 rate cut in 2023.[6]
Projections
| Variable | 2023 | 2024 | 2025 | Longer Run[7] |
| Change in real GDP | 0.4 | 1.2 | 1.9 | 1.8 |
| Unemployment rate | 4.5 | 4.6 | 4.6 | 4 |
| PCE inflation | 3.3 | 2.5 | 2.1 | 2 |
| Core PCE inflation | 3.6 | 2.6 | 2.1 | |
| Federal funds rate | 5.1 | 4.3 | 3.1 | 2.5 |
Notes
- They wait for credit conditions to progress to be able to assess if more rate hikes are needed. Credit tightening could replace rate hikes in the future.
- Still very early to assess the credit tightening that could happen due to the banking issues
- Supervision and regulation for banks will need to improve
- Rate hike made as a credibility action most likely
- The decision to open the new FED facility was made for the contagion risks
- Rate cuts this year is not the FED baseline scenario based on current data
- Recent balance sheet expansion is temporary lending to banks due to emergency liquidity needed, and not the same as QE in the effects of monetary policy
- Dont see evidence that reserves are scarce at the moment
References
- ↑ https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html?redirect=/trading/interest-rates/countdown-to-fomc.html
- ↑ https://www.youtube.com/watch?v=kPWlYMnMA7s
- ↑ https://www.youtube.com/watch?v=rvnpsJQ0cuw&t=281s
- ↑ https://twitter.com/biancoresearch/status/1638238879995269120
- ↑ https://www.federalreserve.gov/monetarypolicy/files/monetary20230322a1.pdf
- ↑ https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html?redirect=/trading/interest-rates/countdown-to-fomc.html
- ↑ https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20230322.pdf