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Rates are maintained - fed funds 5.25-5.50%, bank reserves rate 5.4%, discount rate 5.5%. Rate hike(s) unlikely, but may hold rates as long as necessary. Need more confidence in inflation data before rate cuts. Inflation target remains +2% average.
Treasury QT will be reduced from 6/1/24 to -$25 billion/mo (vs -$60 billion/mo now), but MBS QT will remain at -$35 billion/mo; total QT from 6/1/24 will be -$60 billion/mo (vs -$95 billion/mo now).
The Fed policy is restrictive (despite real rates < inflation rate or GDP growth). Stagflation fears are unreasonable.
Economy is strong. Weak Q1 GDP growth may be a fluke. Some differences between the government and private data are normal as there are leads and lags. For example, the market-rents lead the rolling-rents.
Labor market remains strong, but wage growth has moderated. The labor pool has increased due to higher labor-participation rates and immigration. This has contributed to both supply and demand side.
Consumers see high prices, loan rates and mortgage rates. But significant pain or dislocations aren't expected.
Divergent central bank policies aren't a concern because the economic conditions are different. Also, no turmoil is seen in the EMs. Discussions on Basel III are ongoing.
The FOMC achieves consensus through discussions despite the impression created by many open-mouths of the FOMC.
I get that the principal policy tool is FF funds rates and not the balance sheet but could you please remind the forum why the Fed chose to reduce QT, rather than drop an equivalent FF rate (may be 0.25%)? They may have discussed this in the last minutes, presser or in some other avenue.
(IMO, the repeated verbal expression of concern for lower economic segment (least afford to weather inflation and economic effects of tighter monetary policy) is a lip service when easing balance sheet and not the FF rate.)
There was a question on this - why hold rates (to keep the policy tight), but reduce QT (to make the policy a bit easier). Powell said that its main tool was/is the fed fund rates and QT is of secondary significance. Reducing QT also helps with m-mkt liquidity.
Both the rate hold and QT reduction were well telegraphed in advance (see weekend Barron's, Part 1, Up & Down Wall Street by Forsyth). The main takeaway today was that rates are unlikely to go up.
Put a couple OEF buy / sell orders in around 3:00. Cancelled them about 3:30 when it looked like market was headed for the moon (Dow up 400+). Kinda sorry I pulled them. A lot of things did not move much today. 40/60 TRRIX, which I just watch, lost a bit. So did PRPFX, which I own, even though gold had a pretty decent day. These wild moves are not uncommon, however, on FOMC decision days.
I suspect the Fed leaked. Bloomberg reported today’s decision and some aspects of the announcement last evening as if it were a done deal.
I saw today’s Fed action as no change (no news) from what was disclosed in the previous FOMC release and presser. As Yogi said everything was well telegraphed. So, not sure why the market went up initially.
Comments
Rates are maintained - fed funds 5.25-5.50%, bank reserves rate 5.4%, discount rate 5.5%. Rate hike(s) unlikely, but may hold rates as long as necessary. Need more confidence in inflation data before rate cuts. Inflation target remains +2% average.
Treasury QT will be reduced from 6/1/24 to -$25 billion/mo (vs -$60 billion/mo now), but MBS QT will remain at -$35 billion/mo; total QT from 6/1/24 will be -$60 billion/mo (vs -$95 billion/mo now).
The Fed policy is restrictive (despite real rates < inflation rate or GDP growth). Stagflation fears are unreasonable.
Economy is strong. Weak Q1 GDP growth may be a fluke. Some differences between the government and private data are normal as there are leads and lags. For example, the market-rents lead the rolling-rents.
Labor market remains strong, but wage growth has moderated. The labor pool has increased due to higher labor-participation rates and immigration. This has contributed to both supply and demand side.
Consumers see high prices, loan rates and mortgage rates. But significant pain or dislocations aren't expected.
Divergent central bank policies aren't a concern because the economic conditions are different. Also, no turmoil is seen in the EMs. Discussions on Basel III are ongoing.
The FOMC achieves consensus through discussions despite the impression created by many open-mouths of the FOMC.
A customary denial - the Fed doesn't account for politics or elections.
https://ybbpersonalfinance.proboards.com/post/1456/thread
I get that the principal policy tool is FF funds rates and not the balance sheet but could you please remind the forum why the Fed chose to reduce QT, rather than drop an equivalent FF rate (may be 0.25%)? They may have discussed this in the last minutes, presser or in some other avenue.
(IMO, the repeated verbal expression of concern for lower economic segment (least afford to weather inflation and economic effects of tighter monetary policy) is a lip service when easing balance sheet and not the FF rate.)
Both the rate hold and QT reduction were well telegraphed in advance (see weekend Barron's, Part 1, Up & Down Wall Street by Forsyth). The main takeaway today was that rates are unlikely to go up.
Stocks reacted well at first, but then reversed.
Put a couple OEF buy / sell orders in around 3:00. Cancelled them about 3:30 when it looked like market was headed for the moon (Dow up 400+). Kinda sorry I pulled them. A lot of things did not move much today. 40/60 TRRIX, which I just watch, lost a bit. So did PRPFX, which I own, even though gold had a pretty decent day. These wild moves are not uncommon, however, on FOMC decision days.
I suspect the Fed leaked. Bloomberg reported today’s decision and some aspects of the announcement last evening as if it were a done deal.
My post from last evening: https://www.mutualfundobserver.com/discuss/discussion/62242/fed-to-signal-delay-of-interest-rate-cuts#latest
Thanks, Yogi