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What To Expect From The June FOMC Meeting
Barring a large upside surprise in CPI figures due Tuesday, the Fed will likely pause the most aggressive hiking campaign in a generation at June's policy gathering.
If you're wondering whether I'm both weary and wary of the "most aggressive in a generation" language, that answer is "Yes." It's repetitive and, some might argue, a bit misleading.
The real Fed funds rate, adjusted for core PCE, is barely positive. It's not unreasonable to suggest that as things stand currently, policy settings s
Great and timely summary of the current state of affairs. Many thanks.
I’d like to see a pause, but would prefer that the committee put some power behind it by raising a quarter point, recognizing the risks that may still weaken the economy. It would give the statement more weight. The recovery would not be hurt. And there’s nothing wrong with the committee asserting itself.
I like the extra hike now. Not only for the “weight” but also because it creates a bit of confusion. The bull needs to have its reins pulled, especially with all the new paper flying around.
Thanks Mr. L and MFN. For clarity, the weight I referenced was, of course, the weight of the committee’s judgment. I’m not a Powell fan, but the committee is an important institution and it needs to instill confidence. That’s part of its job.
Markets are chaos in motion, which can be destructive in a very bad way if they’re not governed. Recall 2007-2008.
And the economy is not without risks today. No one seems to be talking about pension funds and mortgage backed securities, but they’re still behind the scenes in the economy and there are still “shadow” risks in the US commercial real estate market.
It’s not 2007 again. But I have difficulty with the nature of the risk in CMBS types of transactions, which can present an element of actual danger to the broader economy.
Based on the “Restrictive?” chart above, I’d say the FOMC needs to push through at least two more quarter-point hikes before year-end if it’s serious about getting inflation moving more quickly toward the 2% target. Not expecting a hike in June, but I wouldn’t be sur[rised to see well-spaced 25bps hikes in July and at the late Oct/early Nov. mtg.
Does the US, as the issuer of the world’s primary reserve currency, have any “moral” obligation to keep rates as low as possible?
Third world countries borrowed in USD when rates were near zero. No way they can now service that debt- possibly leading to chaos and uprisings that could negatively impact international economic stability.
If the Fed can thread the needle and not cause international debt chaos, and still do “ok” with domestic inflation- why not? Everywhere I go, there are lots of people out spending- I have not seen anything on the streets that looks even close to what could be construed as a protest against inflation.
Anecdotal, but job/wage growth might be retreating (at least in certain segments)- I personally know 2 mech engineering 2023 grads who had prior job offers from Silicon Valley startups recently rescinded – reportedly due to problems with corporate finances. They both indicated to me that this is not an isolated situation.
Why pause and then try to convince everyone that you are still really potentially hawkish going into next month? 25 bps now parallels moves by other central banks, runs little risk of breaking anything, and perhaps tempers the recent bull in AI tech. Employment is still strong, and the debt ceiling crisis is behind us. If CPI and/or core were to give them any reasonable excuse I think they should hike.
Interesting piece in Bloomberg today: Fed Backs Away From Wages Focus, Bolstering Case for Rate Pause. Discussing how SOME at the Fed are starting to question whether wages are, indeed, what is driving inflation higher. In my humble opinion, it’s about time.
Potential story in The Onion: Jim Bullard starts to question the validity of his macroeconomic models.
Agreed. What would help is if some politicians of whichever aisle persuasion had the balls to at least raise the possibility of rolling back corporate tax cuts in light of “persistently elevated corporate profit margins that risk becoming unanchored.” Instead, we have Merck suing the government, on Constitutional grounds no less, for having the audacity to even dare trying to negotiate drug prices which will affect the company’s $20 billion flagship drug Keytruda … perhaps as soon as 2028. Existential indeed. May this mark the peak in corporate overreach, which like the stock market, seems to always trend higher.