FOMC will continue to fight inflation by slowly raising rates
2023.01.04 15:33
FOMC will continue to fight inflation by slowly raising rates
Budrigannews.com – At its meeting in December, all Fed officials agreed to slow down their aggressive interest rate increases, allowing them to keep raising credit costs gradually to control inflation.
The meeting’s minutes, which were made public on Wednesday, showed that policymakers were still worried about any “misperception” in the financial markets that their commitment to fighting inflation was weakening.
However, officials also acknowledged that “significant progress” had been made over the previous year. As a result, the central bank now needed to strike a balance between its fight against price increases and the dangers of overly slowing the economy.
At the meeting last month, policymakers approved a half-percentage point rate increase, a decrease from the three-quarters-percentage point hikes that were used for much of 2022. STORY:
STOCKS: slowed down and closed up 0.38 percent BONDS: The 10-year yield on the United States Treasury increased to 3.707% at the most recent close, still lower than late on Tuesday. The 2-year note’s day-to-day yield increased to 4.382%. FOREX: “We’re going to be in this tug of war in the short run until the market understands the length and breadth of Fed policy and recessionary red flags,” the decreased by 0.24 percent.
“It’s hard for me to imagine any kind of PE (price earnings) expansion until we see where the terminal rate is.”
“A discussion that we’ve already been briefed on is reflected in the release of the December FOMC meeting minutes today. Indeed, the overall message has remained consistent throughout Fed speeches and Chair Powell’s press conference following the meeting: The authentic record alerts unequivocally against rashly releasing strategy. We will finish what has been started until the task is finished.’
“Although participants at the meeting in December decided to slow down the rate of policy rate increases from 75 basis point (bps) increments to 50 bps, no speakers have predicted the meeting in February, and neither do the minutes. In addition, Chair Powell has reiterated that the ultimate rate (terminal) and how long to maintain it are the primary concerns rather than the pace of rate hikes.
“Thusly, it isn’t is business as usual that the minutes showed that members kept on examining the total fixing of money related strategy and the slacks between strategy development and effects on the genuine economy.
Participants were all in agreement that the current rate hikes were necessary, but they also talked about the need to balance policy risks from both sides: the gamble of not doing what’s necessary and permitting delayed above-target expansion to unanchor expansion assumptions, or on the other hand the gamble of doing excessively and causing a superfluous decrease in monetary movement.
“In any case, the acclimations to the members’ monetary viewpoints were of interest, especially since the amendments to the Rundown of Financial Projections (SEP) among September and December were very outstanding for expansion. Despite the obvious improvement in inflation dynamics over the previous two months, Committee members still believe that inflation risks are tilted to the upside.
They appear now to be more centered around the work market as the wellspring of expansion, an end we think settles upon temperamental suspicions. None of the participants had a modal outlook on the recession. Because we believe that the primary forces driving the initial hawkish stance have already begun to shift, we will closely monitor their descriptions of their assessments of risks to the outlook in the upcoming speeches.”
Following the publication of the minutes, the dollar’s reaction today was muted. At the time, the December meeting, I believe, the primary tone of the minutes was very well represented. You ponder when the Fed held its gathering in December – we got a new ‘dab plot,’ which showed a float up in the middle spot assumptions for 2023, for instance, there was an easing back of the speed yet there was an unmistakable spotlight on information reliant, moving gathering by meeting.
The press conference, forecasts, statement at the time, and minutes all reflected the hawkish undertone brought about by the “dot plot” change, and I don’t believe they provided any significant new information other than that message.
“If anything, the minutes reinforced the message from December. There wasn’t exactly a significant conversation of what the Fed should seriously mull over doing at its next gathering. I would say that there was no obvious indication that the Fed was leaning toward further slowdown or maintaining the new base of 50 basis point moves they made in December.
I believe that is the primary reason we haven’t seen much reaction, as the message from the minutes is very consistent with all of the information we received in December, and the committee’s meeting in early February really didn’t say much about what it might do next.
“Investors can take the Fed minutes as a helpful reminder to anticipate that interest rates will remain high throughout the entirety of 2023. It makes sense that the Fed will continue to focus on reducing inflation given the persistently strong job market. This week, we will get our first look at how well hiring is going and whether or not the labor market can keep up with higher rates. Main concern is that despite the fact that we flipped the schedule, the market headwinds from last year remain.”
“That will be a continuing theme this year. The Fed still wants to be seen as hawkish on inflation. People who were hoping for a quick turn around are likely to be disappointed.
“The Fed is really focused on fighting wage inflation, which is the reason why the chances of a pivot in the first half of the year are pretty slim. Furthermore, raising interest rates is their only option. That is what they are attempting to combat.
The issue is that the mechanism is imperfect and may take some time. The Federal Reserve is likely to remain hawkish until wage inflation falls significantly below 5%.
“They’re going to be hawkish and continue to push rates higher until they’re able to consistently see wage inflation in the range of 3% to 4%.”
“Compared to what we learned at the previous meeting, probably not a lot of new information. The minutes show that in the committee’s concern that the market is taking signals from the Fed, the market thinks the Fed is going to blink and the Fed is going out of their way to say we are bringing inflation down to 2% and there will be some pain.
It seems like the challenge for Powell is to continue to put his foot on the monetary brake and remain hawkish. It would appear that the market has not yet accepted that.
“We’ve seen that going back to probably June, when the market seemed to get ahead of itself with some data that might be a little better than expected on the inflation front. The Fed had to come on and kind of talk the market back and be hawkish, and Powell had to balance his comments when the data was a little better.
He is sort of on a tightrope because he obviously doesn’t want to kill the economy but they are also well aware of the mistakes made by giving up too early on fighting inflation.
As a result, he is going to keep pushing forward because he really doesn’t have a choice. We are at 4.7 percent on core PCE, and their projection is that we will be at 3.5 percent by the end of the year, which is a pretty big move.
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