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Here are a few takeaways from Jerome Powell's press conference. Core PCE inflation over the trailing 3 months, 6 months, and 12 months is running too high and is not where the Fed wants it to be. The shelter inflation component will remain high for some time. There needs to be a better balance between supply and demand in the labor market. The Fed wants to be in a place where there are positive real rates across the yield curve.
FOMC economic projections for 2022 year-end: 0.2% GDP; 3.8% unemployment; 5.4% PCE; 4.5% core PCE; 4.4% Federal funds rate.
FOMC economic projections for 2023 year-end: 1.2% GDP; 4.4% unemployment; 2.8% PCE; 3.1% core PCE; 4.6% Federal funds rate.
Notes from above & Fed Chair Powell’s Press Conference
Rates: Fed funds +75bps to 3.00-3.25% & more hikes to come; for reserve balances 3.15%; discount rate 3.25%. Real rates to rise across the board. Further +100 to +125 bps rise in fed funds expected by the yearend, so people can guess 75 or 50 or 25 bps hikes at the 2 remaining FOMC meetings. Fed policy to remain restrictive. Fed pause may be at some point, but Fed easing unlikely any time soon.
QT to continue at -$60 billion/mo for Treasuries, -$35 billion/mo for MBS.
Long-term inflation target is +2% average by 2024-25. The current PCE & CPI are too high. Future inflation-expectations are reasonable. Housing/rent (OER) contribution is high and sticky. No special consideration for housing.
Post-pandemic economy will slow to below trend. Financial conditions will tighten; credit spreads will widen. Unemployment rate will rise (labor markets are too strong now, even out of balance). Wage growth will moderate. Soft landing is becoming less likely and recession more likely.
Most global central banks are tightening. They share information but there is no global coordination.
Complex global factors include pandemic, Russia-Ukraine war, supply-chain shocks, energy issues. Some improvements have been seen recently.
Real rates to rise across the board Are you talking about rates for all maturity Treasuries, or various Fed rates (discount rate, Fed funds, ...), or something else? Certainly real rates will rise as inflation declines, unless the cure is worse than the disease and we head toward a significant recession. Then nominal rates could follow inflation down.
The 10 year matters to me because I've been pushing my building to take a cap improvement loan at 5.5%, locked now, as opposed to waiting and taking a more conventional loan at (2.5% + 10 year rate) that doesn't lock until funded months down the road.
Comments
Core PCE inflation over the trailing 3 months, 6 months, and 12 months
is running too high and is not where the Fed wants it to be.
The shelter inflation component will remain high for some time.
There needs to be a better balance between supply and demand in the labor market.
The Fed wants to be in a place where there are positive real rates across the yield curve.
FOMC economic projections for 2022 year-end:
0.2% GDP; 3.8% unemployment; 5.4% PCE; 4.5% core PCE; 4.4% Federal funds rate.
FOMC economic projections for 2023 year-end:
1.2% GDP; 4.4% unemployment; 2.8% PCE; 3.1% core PCE; 4.6% Federal funds rate.
guessprojection sure seems optimistic to me.Rates: Fed funds +75bps to 3.00-3.25% & more hikes to come; for reserve balances 3.15%; discount rate 3.25%. Real rates to rise across the board. Further +100 to +125 bps rise in fed funds expected by the yearend, so people can guess 75 or 50 or 25 bps hikes at the 2 remaining FOMC meetings. Fed policy to remain restrictive. Fed pause may be at some point, but Fed easing unlikely any time soon.
QT to continue at -$60 billion/mo for Treasuries, -$35 billion/mo for MBS.
Long-term inflation target is +2% average by 2024-25. The current PCE & CPI are too high. Future inflation-expectations are reasonable. Housing/rent (OER) contribution is high and sticky. No special consideration for housing.
Post-pandemic economy will slow to below trend. Financial conditions will tighten; credit spreads will widen. Unemployment rate will rise (labor markets are too strong now, even out of balance). Wage growth will moderate. Soft landing is becoming less likely and recession more likely.
Most global central banks are tightening. They share information but there is no global coordination.
Complex global factors include pandemic, Russia-Ukraine war, supply-chain shocks, energy issues. Some improvements have been seen recently.
https://ybbpersonalfinance.proboards.com/thread/158/fomc-statements-6-7-weeks?page=1&scrollTo=782
Are you talking about rates for all maturity Treasuries, or various Fed rates (discount rate, Fed funds, ...), or something else? Certainly real rates will rise as inflation declines, unless the cure is worse than the disease and we head toward a significant recession. Then nominal rates could follow inflation down.
The 10 year matters to me because I've been pushing my building to take a cap improvement loan at 5.5%, locked now, as opposed to waiting and taking a more conventional loan at (2.5% + 10 year rate) that doesn't lock until funded months down the road.
FWIW, here's Goldman Sach's prediction for the 10 year rate, as of yesterday. Given the FOMC announcement was as expected, I figure this is still GS's prediction.
https://www.isabelnet.com/u-s-10-year-treasury-yields-forecast/
https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_real_yield_curve&field_tdr_date_value_month=202209
Inflation-Expectations = Nominal Treasury Yield - TIPS Yield.
TIPS yield is also the real yield for the Treasury.
Media often refers to real yield as nominal yield - inflation (PCE or CPI), but that doesn't work beyond the current times.