“After the Fed meeting, there will be an information overload,” Ryan Sweet, economist at Oxford Economics, said in an interview. Overall, economists expect a hawkish Powell speech for Wednesday. So what are the expectations for the Fed rate decision? Here are the details….
What are the expectations for the Fed rate decision?
Financial conditions have eased since the Fed’s November meeting. However, this does not help to reduce inflation. 10-year Treasury bond TMUBMUSD10Y yield is 3,548%. It fell sharply from 4.21% to 3.49% just after the Fed’s previous policy meeting. The S&P 500 stock index, SPX, gained -0.73%. TD Securities strategist Jan Groen also shared his views. “This has been a year-round struggle for the FOMC,” Groen said in the interview.
Powell had to give a big speech in Jackson Hole. However, we saw a hawkish press conference in November. And then they lost control again. So I think it should do something similar again.
As we reported on Kriptokoin.com, the FED is expected to increase the benchmark interest rate by half a percentage point. This will indicate that the four 0.75-point rate hikes seen since June have slowed. However, it will bring the Fed’s benchmark interest rate to the 4.25%-4.5% range. Some economists argued that the strong November jobs report put an increase of 0.75 percentage points back on the table. However, many do not agree. Tim Duy, economist at SGH Macro Advisors, said:
For all intents and purposes, that ship sailed at the November FOMC meeting. A June-like adjustment is not happening here.
It signals future hikes
Powell and the Fed will reiterate that rates need to go higher to avoid appearing dovish on slower rate hikes. Economists said the Fed would retain the key phrase from its November statement that central bankers expect “continuous increases” in the benchmark rate. Ellen Zentner, chief US economist at Morgan Stanley, argued that the Fed may change its view to “a little more” increase in the benchmark rate to give the Fed flexibility.
Cryptocurrency Forecasts From 2 Economists Who Are CIBC World Markets chief ‘Crisis Prophet’! Avery Shenfeld thinks it’s too early for the Fed to soften statements. Shenfeld also thinks that the Fed can stop the 5% increase and hold it until 2024.
When you have 50 more base points that you’re pretty sure you can do and you may have to do more than that, you won’t change the wording?
How high will rates go?
The Fed forecasts the upper end of the benchmark interest rate to peak at 4.75%. Groen of TD Securities said the Fed will raise the terminal rate, but only slightly, up to 5%. Groen stated that the key point for the markets is terminal interest rates. In September, no Fed official envisioned the terminal interest rate above 5%. Some economists think the Fed could raise the upper limit of the terminal range to 5.25%.
However, economists said that the Fed will not foresee a rate cut in 2023. With the Fed predicting higher interest rates, economists expect the Fed’s forecast to reflect more pain for the economy. In a note to clients, economists at Bank of America stated:
Between 2023 and 2025, we expect GDP growth to be revised lower, the unemployment rate to be revised higher, and inflation to be revised lower.
“One way to measure Powell’s falconry is how he talks about the risk of over-tightening”
In September, the Fed predicted that the unemployment rate would rise to 4.4% in 2023 before slowly falling. The unemployment rate was 3.7% in November. Shenfeld said the market should see a softer inflation forecast. But he added that he should not see a deep recession. Shenfeld said the market thinks inflation will drop rapidly and the Fed will have to come to the rescue. “The press conference is likely to be a hoax,” said Dan North, senior economist at commercial credit insurer Allianz Trade North America, while there are many uncertainties facing the Fed.
He also added, “One way to measure Powell’s falconry is how he talks about the risk of overtightening.” Powell said at a press conference in November that if the Fed tightens excessively, “we can use our tools to support the economy.” Markets then took a dovish signal from Powell’s comment a week ago that the central bank did not want to over tighten. Krishna Guha, vice president of Evercore ISI, said in a note to clients. said:
We should expect a tougher tone in December.
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