Fed will overshoot rate increases

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Investors are too confident the Federal Reserve will cut interest rates this year and could pay the price later, according to asset management giant BlackRock and others on Wall Street.

Market pricing as of Tuesday morning pointed to the Fed holding its benchmark interest rate at current levels and then starting to reduce as early as July, according to CME Group calculations. Those cuts could total as much as a full percentage point by the end of the year, the firm's FedWatch gauge shows.

That comes despite multiple public statements from central bank officials, who indicated in their "dot plot" unofficial forecast last week that they see probably another quarter percentage point hike and then no cuts at least through the end of 2023.

The expectation for cuts would be consistent with a recession and an accompanying fall in inflation, assumptions that Wall Street strategists think are dubious.

"We don't see rate cuts this year – that's the old playbook when central banks would rush to rescue the economy as recession hit," BlackRock said in its weekly client note. "Now they're causing the recession to fight sticky inflation and that makes rate cuts unlikely, in our view."
...
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www.cnbc.com

BlackRock warns that investors are making a mistake by betting on the Fed to cut rates

The expectation for cuts would be consistent with a recession and an accompanying fall in inflation.
www.cnbc.com www.cnbc.com
 
As you well know pmbug tomorrrow afternoon the fed will release their weekly data. If they continued to expand their balance sheet with bank loans it will be a clue if they are going to still increase rates or pause for a bit.
 
I personally expect a rate increase with or without a balance sheet expansion (but there probably will be a balance sheet expansion).
 
pmbug said:
I personally expect a rate increase with or without a balance sheet expansion (but there probably will be a balance sheet expansion).
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I'm betting no balance sheet expansion tomorrow (head fake) and no interest rate increase at next meeting.
 
A pause, and then a return, slow or fast, to ZIRP.

Powell isn't reversing fast because that makes him look bad. But Powell WILL reverse, because the Free Money types are in charge in Washington. He loves power more than he cares about responsible stewardship.

Back to ZIRP, and a few months or years of malinvestment - increasingly-toxic malinvestment, such as FB censors, money-for-Remdesivir fatalities, and more banning of useful products and subsidies for worthless ones.

Until it finally crashes. Delaying the inevitable only raises its cost and damage, exponentially.
 
I predict rates will stay the same...or change. :sleep:


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An inflation gauge the Federal Reserve follows closely rose slightly less than anticipated in February, providing some hope that interest rate hikes are helping ease price increases.

The personal consumption expenditures price index excluding food and energy increased 0.3% for the month, the Commerce Department reported Friday. That was below the 0.4% Dow Jones estimate and lower than the 0.5% January increase.

On a 12-month basis, core PCE increased 4.6%, a slight deceleration from the level in January.

Including food and energy, headline PCE increased 0.3% monthly and 5% annually, compared to 0.6% and 5.3% in January
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www.cnbc.com

Key Fed inflation gauge rose 0.3% in February, less than expected

The personal consumption expenditures price index excluding food and energy was expected to rise 0.4% in February.
www.cnbc.com www.cnbc.com

It's just one data point, but it is showing signs of the disinflation that the Fed wants to see.
 
WASHINGTON, April 3 (Reuters) - Federal Reserve officials, increasingly confident they have nipped a potential financial crisis in the bud, now face a difficult judgment on whether demand in the U.S. economy is falling and, if so, whether it is coming down fast enough to lower inflation.

If the U.S. central bank's policy meeting two weeks ago was dominated by concern that a pair of bank failures risked broader financial contagion - a potential reason to pause further interest rate increases - debate has quickly refocused on whether tighter monetary policy has started to show its impact on the broader economy, or if rates need to rise higher still.

www.reuters.com

As banking jitterbug dies down, Fed returns to its main dance partner

Federal Reserve officials, increasingly confident they have nipped a potential financial crisis in the bud, now face a difficult judgment on whether demand in the U.S. economy is falling and, if so, whether it is coming down fast enough to lower inflation.
www.reuters.com www.reuters.com
 
searcher said:
WASHINGTON, April 3 (Reuters) - Federal Reserve officials, increasingly confident they have nipped a potential financial crisis in the bud, now face a difficult judgment on whether demand in the U.S. economy is falling and, if so, whether it is coming down fast enough to lower inflation.

If the U.S. central bank's policy meeting two weeks ago was dominated by concern that a pair of bank failures risked broader financial contagion - a potential reason to pause further interest rate increases - debate has quickly refocused on whether tighter monetary policy has started to show its impact on the broader economy, or if rates need to rise higher still.

www.reuters.com

As banking jitterbug dies down, Fed returns to its main dance partner

Federal Reserve officials, increasingly confident they have nipped a potential financial crisis in the bud, now face a difficult judgment on whether demand in the U.S. economy is falling and, if so, whether it is coming down fast enough to lower inflation.
www.reuters.com www.reuters.com
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No need to read all that we'll see Thursday afternoon how they are doing.
 
Cleveland Fed President Loretta Mester said she expects the central bank will have to raise interest rates further in order to bring down inflation.
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Mester said she sees somewhat more persistent inflation pressures than the median forecast of Fed officials.

The central bank’s median forecast is for headline PCE inflation to cool to a 3.3% rate this year, 2.5% in 2024 and 2.1% in 2025. Headline inflation was running at a 5% annual rate in February.

In their policy statement, Fed officials said more rate hikes “may” be needed and penciled in one more rate hike to their forecast, which would bring their benchmark rate to a range of 5%-5.25%.

Tim Duy, chief U.S. economist at SGH Macro Advisors, said he thinks it will be difficult for the Fed to pause at its next meeting in early May, with inflation elevated and job growth strong.
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www.marketwatch.com

Fed's Mester sees 'somewhat' higher interest rates ahead

Cleveland Fed President Loretta Mester said her forecasts includes 'monetary policy moves somewhat further into restrictive territory' this year.
www.marketwatch.com www.marketwatch.com

Markets will likely balk a bit if the Fed does raise rates again. Markets seem to be expecting a rate pause.
 
Wolf analyzes the details of the Fed's weekly report:
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QT continued with Treasury securities: -$56 billion in four weeks, -$491 billion from peak, to $5.28 trillion, the lowest since August, 2021.
...
QT continued with MBS: -$16 billion in four weeks, -$146 billion from peak, to $2.59 trillion.
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It seems – we don’t get names – some banks are paying down their discount window loans with funds they borrowed under the new liquidity program, the Bank Term Funding Program (BTFP), that the Fed rolled out on March 13.

Under the BTFP, banks can borrow for up to one year, at a fixed rate, pegged to the one-year overnight index swap rate plus 10 basis points. This rate is currently somewhat lower than the 5% discount window rate. Banks also have to post collateral, but valued only “at par.”

To be eligible for the BTFP, per term sheet, the collateral has to be “owned by the borrower as of March 12, 2023,” and banks cannot buy securities at market price and post them as collateral at par.

For banks, the BTFP is still expensive money – though less expensive than the Discount Window – because they have to post collateral, when they could normally borrow from depositors or unsecured bondholders without having to post any collateral.

Discount Window: -$18 billion in the week, -$83 billion in three weeks, to $70 billion (from the peak of $153 billion three weeks ago).

Bank Term Funding Program (BTFP): +$15 billion in the week, to $79 billion.
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More:

wolfstreet.com

Fed’s Balance Sheet Plunges by $101 Billion in Two Weeks, as QT Continues and Bank Liquidity Support Begins to Unwind

The dream of a return to QE was fun while it lasted.
wolfstreet.com
 
I was looking for this info this morning. Posting it for future reference...

When The Fed Will Announce Interest Rates In 2023?​

The Fed will announce interest rates in 2023 on the following dates, with the announcement coming at 2pm Eastern Time. These announcements will be followed by a press conference with Fed Chair Jerome Powell.

The Fed’s 2023 Meeting Schedule​

  • February 1, 2023
  • March 22, 2023
  • May 3, 2023
  • June 14, 2023
  • July 26, 2023
  • September 20, 2023
  • November 1, 2023
  • December 13, 2023
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The most aggressive central bank tightening cycle for decades is reaching its finale. This is our definitive guide to global central banks as we enter another round of crucial meetings over the next few weeks

think.ing.com

Central banks: Our latest calls ahead of a dramatic month

The most aggressive central bank tightening cycle for decades is reaching its finale. This is our definitive guide to global central banks as we enter…
think.ing.com think.ing.com
 
...

Federal Reserve​


Our call: 25bp hike in May marks the top. A six-month pause and then 50bp of rate cuts in November and December,
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I don't think the markets are going to like another hike on May 3. I also don't think the Fed will cut rates that quickly.
 
I think the fed did a good even great job today.

Note: I'm basing that on how PMs reacted.
 
We are the frogs and the FED is boiling the water now. Gonna shut it all down to kill the middle class to force many onto the government plan.

The bankers and politicians want to collect a vig for doing nothing just as Trump Jr described.

The FED will not cut rates either until everything bottoms and more banks crash. They will be late.
 
Stocks rose Monday as traders hope the Federal Reserve will skip hiking rates when the central bank decides on policy Wednesday.
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Markets have come to expect that the Fed will skip another rate increase at this week's meeting, with traders Monday morning pricing in a 74% chance that there will be no hike, according to the CME Group's FedWatch tool.
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www.cnbc.com

Stocks rise as hope builds Fed will pause rate hikes this week: Live updates

Markets have come to expect that the Fed will skip another rate increase at this week's meeting, with traders pricing in a 74% chance there will be no hike.
www.cnbc.com www.cnbc.com
 
pmbug said:
I have posted many times in many places over the years that our experiment with fiat currency is akin to playing Shoot the Moon with a set of infinitely long rails. Central banks adjust the rails - loosening and tightening the pressure to keep the ball rolling, but eventually the ball's momentum is going to escape the pressure. It's impossible to keep playing the game forever.
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AEP argues it's time to start easing pressure on the rails:
The global inflation shock of the last two years is over bar the shouting. Legacy effects will generate much noise for a few months but the one-off spike is reversing almost everywhere with an elegant symmetry.

China is sliding into outright deflation as its post-Covid recovery peters out. Wage cuts are spreading in a sureal replay of what happened in Europe and America during the 1930s. Such is the Spartan ethos of Xi Jinping’s ‘common prosperity’ campaign.

The Chinese producer price index has been negative for seven months, and the downward slide is accelerating. The headline CPI inflation rate has already dropped to 0.1pc and will soon be negative. The Shanghai region is at minus 1.1pc already.

This has large implications. China remains the workshop of the world, with the scale to shift the global pricing structure. It needs to export its way out of an economic depression and will not hesitate to do so with a cheaper yuan, down 12pc since early 2022. A wave of disinflation is coming our way.
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Chinese goods deflation is hitting a slowing world economy. JP Morgan’s index of input prices for global manufacturing has fallen below the boom-bust line.

We learned today that the eurozone has been in recession since the fourth quarter of last year, unlike the UK, which keeps confounding the OECD and the International Monetary Fund. Is there something wrong with their models, one may ask, or their ideology? (I utter not a word beginning with B).

Europe’s recession seems to be spreading, sucking in France as property transactions freeze and real consumption hits a brick wall. In its infinite wisdom, the European Central Bank is once again tightening hard after the onset of recession. It has pre-committed to further rate rises in June and July and will no doubt persist for the sake of ‘credibility’.

Isabel Schnabel, Germany’s firm hand on the ECB executive board, says it is better to err on the side of being tough. It was that sort of thinking that led to the unforced error of the eurozone debt crisis from 2011-2014.

The ECB’s financial stability report last week reads like a Gothic horror story, which I will explore in our next Economic Intelligence newsletter. Suffice to say that broad M3 money has been contracting since September, demand for bank credit has collapsed at rates comparable to 2008, and a credit crunch is underway. The eurozone may find itself uncomfortably close to deflation again within eighteen months.

Which leaves the Anglo-Saxons. There is no evidence of an inflation psychology or a wage-price spiral in the US. None. Inflation expectations five years ahead (5-Y/5-Y forwards) are dead flat at 2.27pc, lower than they were all through the early 2010s when rates were zero.

The canonical Blanchard-Bernanke opus on the causes of US pandemic inflation is that the $5 trillion fiscal blitz by Trump and Biden in an economy near full capacity was bound to end badly. They think this one-off “insanity” – to use Olivier Blanchard’s term – has largely played out. Inflation will keep falling mechanically to 4pc without the need for scorched earth policies. Getting below that will be harder.

The monetarist view is that war-time expansion of the money supply by the Fed caused the inflation blow-off, and that the process is now going into reverse too violently for safety. Broad M2 money growth has fallen at a record post-war rate of 4.6pc over the last year and this leads the real economy by a year or two.

The pace of contraction is likely to quicken as the US Treasury rebuilds its account after the debt-ceiling deal, and the Fed runs down its balance sheet (QT). JP Morgan estimates that they will together drain $1.1 trillion of liquidity from the financial system over the next four months. Most of this will come from bank reserves, risking fresh trouble among struggling regional lenders. Could there be an M2 melt-down by September? Yes, there could. Whatever happens, US inflation is coming down.
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More (long):

 
  • The Federal Reserve on Wednesday is expected to take a break and skip another interest rate hike.
  • Following its two-day meeting, the central bank will release a statement along with economic and rate projections.
  • Chairman Jerome Powell then will hold a news conference where he's expected to take a cautious tone and not rule out future increases.
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www.cnbc.com

Here's everything the Federal Reserve is expected to do Wednesday

The Federal Reserve on Wednesday is expected to take a break and let the U.S. economy catch its breath.
www.cnbc.com www.cnbc.com
 
It doesn't flippin' matter.

Because all this New Money gets its value from eroding the money that people actually WORKED for.

ZIRP just enables the moneychangers to play THEIR games. It's another form of subsidy, paid for by, again, printing money...absorbing the actual cost of lent funds.

We shouldn't HAVE a set interest rate - it should be a function of the market, to determine the cost of borrowed capital.

What we are seeing, is what comes of a manipulated command-and-control economy. We're seeing it as prices rising, from the destruction of the currency value. We're also seeing it as people and organizations that borrowed money at essentially no cost, a policy set by government managers' whim...now have to deal with a much-higher (but far lower than a market)cost of borrowed capital. Raised, again, basically by government-officials' whim.

One can plan against economic laws. There is NO defense against the whims of the politically powerful and connected.
 
It seems like the Fed is following market expectations - doing everything possible to not surprise the fragile market.
 
<SLV> said:
It seems like the Fed is following market expectations - doing everything possible to not surprise the fragile market.
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Or maybe they are doing a better job setting the expectations/guidance so the markets understand what they are planning.
 
The Fed's forward guidance with yesterday's pause was hawkish in tone, but also not very firm (lot's of uncertainty):

... A dot plot of future expectations reveals total confusion. ...
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More:


My initial reaction to the FOMC Summary of Economic Projections (SEP) document was the Fed is Totally Confused.

I just played the press conference video and Fed Chair Jerome Powell stated "I never have a lot of confidence where the Fed Funds Rate will be that far in advance."

To a second question Powell answered "I would not put too much on forecasts even one year out because they are so highly uncertain."
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The “dot plot.” In its updated “Summary of Economic Projections” (SEP) today, which includes the infamous “dot plot,” the median projection for the federal funds rate at the end of 2023 rose by two rate hikes, to 5.625%. Two more rate hikes this year, that was a very hawkish add-on.

This would move the target range for the federal funds rate between 5.5% and 5.75% by the end of the year. And obviously there is no rate cut in the projections for 2023; not a single member projected a rate cut.

Nobody in the dot plot projected rate cuts by year end. Two members projected holding rates at current levels for the remainder of the year (mid-point of 5.125%, for a target range of 5.0% to 5.25%, which is the current target range). The remaining 16 members projected one or more rate hikes by year end, with one of them projecting 1 full percentage point (mid-point of 6.125%).
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This might warrant it's own separate thread...

pmbug said:
AEP argues it's time to start easing pressure on the rails:
...
The pace of contraction is likely to quicken as the US Treasury rebuilds its account after the debt-ceiling deal, and the Fed runs down its balance sheet (QT). JP Morgan estimates that they will together drain $1.1 trillion of liquidity from the financial system over the next four months. ...
Click to expand...
...
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...
The Treasury Department is now selling a flood of Treasury securities to replenish its checking account that had been drawn down to near-nothing during the debt-ceiling standoff. These securities include a large amount of Treasury bills (with a maturity date in one year or less), short-term Cash Management bills (at the last CMB auction on June 13, it sold $45 billion in 42-day CMBs), and longer-term notes and bonds, including TIPS.
...
Massive bond issuance will be required in the near future, along with tax receipts, to:
  • Replenish the TGA
  • Pay off maturing securities
  • Fund the ongoing blistering budget deficit.
...
Now the Fed’s QT is running for the first time simultaneously with the TGA being refilled, and both are draining liquidity from the markets simultaneously, and this is happening with some lag effects, amid the usual ups and downs.
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The Fed took the market at least a little bit by surprise when it decided to project two more rate hikes earlier this month. It comes as readings on consumer prices continue to slow, and as the Fed itself admits that the impact from past increases have yet to be felt on the broader economy.

Tom Essaye, the founder and president of Sevens Report Research, says the answer to this puzzle lies in a framework put out by former Fed Chair Ben Bernanke, in a paper published in May.
...
... the Bernanke paper also warned that the longer a tight labor market is allowed to persist, the greater the chances it becomes a constant source of upward inflation. “If the current Fed is listening to Bernanke (and I imagine they are), then the Fed may be more focused on unemployment than anyone appreciates,” says Essaye.

That’s why there is 50 more basis points of hiking in store, probably regardless if CPI declines further. Essaye says the focus will be on the labor market, and markets have two fears — either no change, which will mean the Fed will have to get even more hawkish, or a really sudden deterioration, in which case there will be evidence it’s gone too far.
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www.marketwatch.com

The Fed's been hawkish even as CPI recedes. Bernanke helps explains why.

The answer to the puzzle of a hawkish Fed lies in a framework put out by former Fed chair Ben Bernanke, in a paper published in May.
www.marketwatch.com www.marketwatch.com
 
Federal Reserve Chairman Jerome Powell talked tough on inflation Wednesday, saying at a forum that he expects multiple interest rate increases ahead and possibly at an aggressive pace.

"We believe there's more restriction coming," Powell said during a monetary policy session in Sintra, Portugal. "What's really driving it ... is a very strong labor market."
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More:

www.cnbc.com

Powell says more 'restriction' is coming, including possibility of hikes at consecutive meetings

Powell spoke at a European Central Bank monetary policy forum in Sintra, Portugal.
www.cnbc.com www.cnbc.com
 
The initial weekly jobless claims decreased by 26,000 to 239,000 in the week to Saturday, surprising the markets with a bigger-than-expected drop.

Economists’ consensus calls projected the initial claims to come in at 266,000. The previous week’s level was revised up by 1,000 to 265,000.
...
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www.kitco.com

U.S. weekly jobless claims drop by 26,000 to 239,000, gold price sinks

www.kitco.com

Whether these numbers are real or made up BS, the Fed is going to use them to justify more rate hikes.
 
pmbug said:
www.kitco.com

U.S. weekly jobless claims drop by 26,000 to 239,000, gold price sinks

www.kitco.com

Whether these numbers are real or made up BS, the Fed is going to use them to justify more rate hikes.
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I get that this is controlled-demolition, to crash the dollar to aid rolling out the CBDCs...but, is it wrong to leave the era of zero-interest printed-up fiat that is also the World's Reserve Currency?

We should never have gotten to where we are, but the only way out is to normalize interest rates. Interest is the price of borrowed capital - and Free Money just destroys an economy. As we're seeing, with all the reckless borrowing and malinvestment.
 
Philadelphia Federal Reserve President Patrick Harker on Tuesday indicated that the central bank could be at the end of its current rate-hiking cycle.

A voter this year on the rate-setting Federal Open Market Committee, the central bank official noted progress in the fight against inflation and confidence in the economy.

"Absent any alarming new data between now and mid-September, I believe we may be at the point where we can be patient and hold rates steady and let the monetary policy actions we have taken do their work," Harker said in prepared remarks for a speech in Philadelphia.
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www.cnbc.com

Philadelphia Fed President Patrick Harker suggests interest rate hikes are at an end

A voter this year on the rate-setting FOMC, Harker noted progress in the fight against inflation and confidence in the economy.
www.cnbc.com www.cnbc.com
 
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