bluegrassfan
New member
From the 2 PM EST release:
- Raised the benchmark policy rate by 25 bps to 4.75-5.00%
- Reiterated the 2023 terminal rate of 5.00-5.25%
- Lowered expected 2023 unemployment rate to 4.5% from 4.6% prior
- Raised expected 2023 inflation (core PCE) to 3.6% from 3.5% prior, risks are to the upside
- Lowered 2023 GDP growth to 0.4% from 0.5% prior, risks are to the downside
- Inflation remains too high and labor market remains very tight, consumer spending seems to have picked up this quarter. Housing activity remains weak. Subdued growth to continue. Labor market expected to loosen. The path to 2% inflation will be bumpy.
- Big focus on how tightening credit conditions (from bank crisis) will affect the economy. Further hikes will depend on how much the economy tightens as a result of the banking sector puckering up. Don’t know how things will play out. Prepared to use all tools if any more banking issues arise.
- Significant number of people believe tightening in credit conditions will have the same effect as Fed policy.
- Did consider a pause. Labor and inflation data stronger than expected, but banking stress has tightened in a similar way to some rate hikes. Otherwise would have hiked rates further over the course of the year. "Public believes the Fed will be able to lower inflation. It is important that we sustain the public’s confidence with actions as well as words."
- Disinflation is occurring unevenly. Goods inflation coming down for 6 months, admittedly more slowly than wanted. Housing services will come down given the lag in data. However, still don’t have progress in the non-housing services sector. Believes will have to soften demand and labor market conditions.
- Base case does not see rate cuts this year. Looking to see how the credit tightening cycle plays out with respect to demand and the labor market, but if 5.1% is not sufficiently restrictive, the Fed will go higher. “In the end, we will do enough to bring inflation down to 2%, no one should doubt that."
- Recent liquidity provisions that increased the size of the Fed’s balance sheet are not intended to alter monetary policy and is not QE. Will not have the same impact on the economy as QE.
- (Historically the unemployment has almost always shot past Fed projections. Responding to a question on how the Fed will keep unemployment within estimates this time around) The unemployment SEP figures are an estimate, a highly uncertain estimate as recessions are nonlinear and hard to model. Don’t really know how things will play out, but regardless, the Fed has to bring inflation down to 2%. There are real costs to bring it down to 2%, but the costs of failure are much higher.
- Hard to see how recent events would help the probability of a soft landing. The longer this kind of period is sustained, less likely a soft landing is. Thinks a pathway to a soft landing exists and the Fed is trying to find it. “I do still think there is a pathway to [a soft landing]. I still think that pathway still exists, and you know we, certainly, are trying to find it.”
