The Federal Reserve has hiked the fed funds target rate range 25bp to 4.75-5% as largely expected by the markets and economists. This was a unanimous decision with the committee backing the view that “some additional policy firming may be appropriate”. This is a slight language shift having previously said that “ongoing increases in the target range will be appropriate” (our emphasis).
Their dot plot chart shows that their end-2023 Fed funds median forecast is 5.1%, which is the same as it was in December, whereas surveys of economists suggested an expectation they would have raised that to 5.4%. So again it does appear to be a little more dovish than expected.
Nonetheless, the Fed appears quietly confident the economy won’t be heavily disrupted by recent banking sector woes. It argues that the “US banking system is sound and resilient” so their fourth quarter year-on-year GDP forecast for 2023 has only been cut from 0.5% to 0.4% while 2024 is now 1.2% versus 1.6% expected three months ago. The unemployment and inflation expectations are little changed. Moreover, the Fed are now looking for only 75bp of rate cuts in 2024 rather than 100bp of cuts that it had projected back in December. Chair Powell used the press conference to separate the Fed’s price stabilty role and financial stability role, saying that it has the tools to deal with both, echoing comments from the ECB’s Christine Lagarde last week.
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