Federal Reserve:Meetings/2023 May 3

Meeting Results

In a unanimous decision widely expected by markets, the central bank’s Federal Open Market Committee raised its benchmark borrowing rate by 0.25 percentage point.

The increase takes the fed funds rate to a target range of 5%-5.25%, the highest since August 2007.

The document omitted a sentence present in the previous statement saying that “the Committee anticipates that some additional policy firming may be appropriate” for the Fed to achieve its 2% inflation goal.

Notes

Future rate hikes

• ln light of uncertain headwinds, along with the monetary policy restraint put in place, future policy actions will depend on how events unfold. Prepared to do more if greater monetary policy restraint is warranted.
• If current rates are restrictive enough is going to be an ongoing assessment
• Committee, have a view that inflation is going to come down, not so quickly, but it'll take some time. And in that world, if that forecast is broadly right, it would not be appropriate to cut rates, and we won't cut rates

Inflation

• Always going to have 2 percent as the target, not looking to get to 3 percent and then drop the tools.
• Wages it's a couple of percentage points above what would be consistent with 2 percent inflation over time.

Recession Probability

• Recession is not Powell most likely case, which is really that the economy will continue to grow at a modest rate this year.
• Staff produces its own forecast, and it's independent of the forecasts of the participants.
• Staff forecast was for a mild recession, and by that I would characterize as one in which the rising unemployment is smaller than is has been typical in modern era recessions.

Debt Ceiling

• A failure of the US government to pay its bills would be unprecedented. We'd be in uncharted territory, and the consequences to the US economy would be highly uncertain and could be quite averse.
• No one should assume that the Fed can protect the economy from the potential, you know, short- and long-term effects of a failure to pay bills on time.

Banking Crisis

• Won't have to raise the rates quite as high if this would have had not happened. But the precise effect is quite impossible to estimate.

• Don't have an agenda to further consolidate banks. Consolidation has been a factor in the US banking industry really since interstate banking and before that even, it goes back more than 30 years
• Banking data will show that lending has continued to grow, but the pace has been slowing really since the second half of last year.
• Loan Officer Survey will most likely show further tightening.
• Focus now and going forward is going to be what's happening with credit tightening, are small- and medium-sized banks tightening credit standards, and is that having an effect on loans.

Market Expectations

• Market is expecting 0.25 bps with a 88% probability.

IINSTITUTION	ESTIMATE
BARCLAYS	25BPS
BMO	25BPS
BLOOMBERG	25BPS
CREDIT SUISSE	25BPS
CIBC	25BPS
CITI	25BPS
GOLDMAN SACHS	25BPS
GURGAVIN CAPITAL	25BPS
HSBC	25BPS
JP MORGAN	25BPS
MORGAN STANLEY	25BPS
TD	25BPS
VISA	25BPS
WELLS FARGO	25BPS
MEDIAN	25BPS

Commentary

Boston Fed president Eric Rosengren

Is not necessary to raise rates anymore, as the economy is likely to slowdown in seconf half of the year. But the FED will most likely do it.

- Banking sector will continue to be under stress

Credit losses from CRE and other sectors under stress

Deposit outflows continue

- We will most likely see further credit tightening in the loan officer survey

- Debt Ceiling uncertainty

- Credit crunches dont happen often, so the ability to predict the effect on the economy is difficult.

Jim Bianco

Trouble with regional banks won't change Fed Chair Powell's mind

- They will raise rates on may, and will leave the door open for another one in june

- Jim sees this as a mistake, but their only focus seems to be inflation

- Fed has made clear the debt ceiling is a political issue, and FED should not intervene or change monetary policity based on it

JPM

JPMorgan scanerios for Fed tomorrow

• Most likely — hike and pause: $SPY rising 0.50%-1%

• Second-most likely — hike and continue raising rates: $SPY falls 0.75%-1.50%

• Unlikely — no hike and pause: $SPY rallies 1.50%+

• Highly unlikely — rate cut: $SPY rallies 2.50%+

Danielle DiMartino Booth

- The fed dont like to surprise the markets. If the FED dont hike rates, traders will take it as a signal of panic about the economy

- Pause in rates don't necessarily mean the FED will stop QT