(Reuters) – The U.S. Federal Reserve on Wednesday hiked the widely expected 25 basis points, withdrawing language from its policy statement and saying it “expects” more rate hikes will be needed. Stated.
The Fed Funds target rate is currently in the 5% to 5.25% range, following a 500bp rate hike from March 2022 onwards. Chairman Jerome Powell refuted such expectations.
Powell said he expects a recession to be avoided this year, despite lingering concerns about a escalating U.S. banking crisis.
The Fed’s next monetary policy decision is scheduled for June 14th.
“We see the FOMC meeting in May as upholding our call for a moratorium in June.”
“Certainly, the statement nodded as strongly towards the June moratorium as we had expected .. but given the wide range of views on the appropriate path, it would be difficult to put together a statement that would be acceptable to everyone. “It’s probably difficult, and in retrospect, I’m not surprised that the FOMC simply chose to stay quiet.”
“[Chairman Powell]also makes the clearest statement that he believes a soft landing is possible and that he believes the labor market rebalancing so far has been encouraging,” he said.
“We think Chairman Powell’s view on the soft-landing issue has a dovish connotation. He may hesitate if he thinks that the Fed’s rate hike will raise interest rates significantly, risking a recession.”
“The Fed believes it has reached its final rate this tightening cycle, but it is mindful that there are two jobs reports and a CPI inflation report ahead of the FOMC meeting in June.
“If regional bank stress stabilizes, the labor market tightens and inflation remains high, a rate hike in June could be justified,” he said.
“(Hints of pause), especially when compared to recent[Fed Board member Christopher J. Waller in Washington]more hawkish warnings that policy will stay tighter for longer. It could be interpreted as being more dovish than we expected.”
“The range is now at the Fed’s projected peak of 5.00% to 5.25% and we expect it to remain in this range before the first 25bp rate cut in March 2024. , will raise our expectations of the economy and monetary policy as the incoming data evolve.”
“We expect the FOMC to remain in the 5.00-5.25% target range for the rest of the year.”
“The forecast is for a gradual slowdown in economic activity and moderate growth in the second half of the year as the labor market eases, unemployment rises and core PCE inflation tapers toward 3.5% in the fourth quarter. We expect the economy to turn into a recession.”
In particular, we do not assume that disruptions in the banking sector will escalate into a severe financial crisis.”
“…it appears that the Commission continues to view the tightening of lending terms following the collapse of the SVB as gradually weighing down activity over the next few months and preparing for further rate hikes…”
(Reporting by Susan Mathew, Bangalore; Editing by Sonia Cheema)
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