by Calculated Risk on 3/19/2023 11:48:00 AM
There is uncertainty regarding FOMC policy this month due to the banking issues. Just two weeks ago, the debate appeared to be between a 25bp hike and a 50 bp hike at the March meeting. On March 7th, Fed Chair Powell said:
However, expectations are now that the FOMC will announce a 25bp rate increase in the federal funds rate at the FOMC meeting this week, and they might even pause.Nick Timiraos reviews the Fed’s situation at the WSJ: Fed’s Rate Path In Question After Silicon Valley Bank Collapse
the federal funds rate by 25bp to 4.75-5.0%. The recent market turbulence stemming
from distress in several regional banks certainly calls for more caution … In the absence of further events, policymakers are likely to conclude that inflation
stability remains a key monetary policy priority and, given that the economic data point
to real side resilience and inflation persistence, a view a 25bp rate hike is warranted.
Forward guidance, however, is likely to be somewhat dovish, highlighting the emergence
of downside risk to the outlook and the policy rate path.”emphasis added
1 Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.
The unemployment rate was at 3.6% in February, just above the 50-year low. The FOMC has been criticized for projecting a significant employment recession this year, and they will probably revise down their projected unemployment rate for Q4 2023.
2 Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.
As of January 2023, PCE inflation was up 5.4% year-over-year from January 2022, and, in general, inflation has been close to expectations. However, after accounting for the unusual dynamics related to the pandemic, inflation is likely lower than expected. The FOMC will likely leave their inflation projections mostly unchanged.
PCE core inflation was up 4.7% in January year-over-year.