Posted on 09/21/2022 10:24:22 AM PDT by Signalman
The Federal Reserve is widely expected to raise its benchmark interest rate by 0.75 percentage point at its meeting that concludes Wednesday.
Other items markets will be watching include quarterly economic and rate projections and Chairman Jerome Powell’s post-meeting news conference.
Judging by recent market action and commentary, the expectation is for a hawkish hard line.
There’s not a lot of mystery surrounding Wednesday’s Federal Reserve meeting, with markets widely expecting the central bank to approve its third consecutive three-quarter point interest rate hike.
That doesn’t mean there isn’t considerable intrigue, though. While the Fed almost certainly will deliver what the market has ordered, it has plenty of other items on its docket that will catch Wall Street’s attention.
Here’s a quick rundown of what to expect from the rate-setting Federal Open Market Committee meeting:
Rates: In its continuing quest to tackle runaway inflation, the Fed likely will approve a 0.75 percentage point hike that will take its benchmark rate up to a target range of 3%-3.25%. That’s the highest the fed funds rate has been since early 2008. Markets are pricing in a slight chance for a full 1 percentage point increase, something the Fed has never done since it started using the fed funds rate as its primary policy tool in 1990.
Economic outlook: Part of this week’s meeting will see Fed officials issue a quarterly update of their interest rate and economic outlook. While the Summary of Economic Projections is not an official forecast, it does provide insight into where policymakers see various metrics and interest rates heading. The SEP includes estimates for GDP, unemployment and inflation as gauged by the personal consumption expenditures price index.
The “dot plot” and the “terminal rate”: Investors will be most closely watching the so-called dot plot of individual members’ rate projections for the rest of 2022 and subsequent years, with this meeting’s version extending for the first time into 2025. Included in that will be the projection for the “terminal rate,” or the point where officials think they can stop raising rates, which could be the most market-moving event of the meeting. In June, the committee put the terminal rate at 3.8%; it’s likely to be at least half a percentage point higher following this week’s meeting.
Powell presser: Fed Chairman Jerome Powell will hold his usual news conference following the conclusion of the two-day meeting. In his most notable remarks since the last meeting in July, Powell delivered a short, sharp address at the Fed’s annual Jackson Hole, Wyoming, symposium in late August emphasizing his commitment to bringing down inflation and in particular his willingness to inflict “some pain” on the economy to make that happen.
New kids on the block: One slight wrinkle at this meeting is the input of three relatively new members: Governor Michael S. Barr and regional Presidents Lorie Logan of Dallas and Susan Collins of Boston. Collins and Barr attended the previous meeting in July, but this will be their first SEP and dot plot. While individual names are not attached to projections, it will be interesting to see whether the new members are on board with the direction of Fed policy.
The big picture Put it all together, and what investors will be watching most closely will be the meeting’s tone – specifically how far the Fed is willing to go to tackle inflation and whether it is concerned about doing too much and taking the economy into a steeper recession.
Judging by recent market action and commentary, the expectation is for a hawkish hard line.
“Fighting inflation is job-one,” said Eric Winograd, senior economist at AllianceBernstein. “The consequences of not fighting inflation are greater than the consequences of fighting it. If that means recession, then that’s what it means.”
Winograd expects Powell and the Fed to stick to the Jackson Hole script that financial and economic stability are wholly dependent on price stability.
In recent days, markets have begun to relinquish the belief that the Fed will only hike through this year then start cutting possibly by early or mid-2023.
“If inflation is really stubborn and stays high, they may just have to grit their teeth and have a recession that lasts for a while,” said Bill English, a professor at the Yale School of Management and former senior Fed economist. “It’s a very tough time to be a central banker right now, and they’ll do their best. But it’s hard.”
The Fed has accomplished some of its goals toward tightening financial conditions, with stocks in retreat, the housing market slumping to the point of a recession and Treasury yields surging to highs not seen since the early days of the financial crisis. Household net worth fell more than 4% in the second quarter to $143.8 trillion, due largely to a decline in the valuation of stock market holdings, according to Fed data released earlier in September.
However, the labor market has stayed strong and worker pay continues to rise, creating worries over a wage-price spiral even with gasoline costs at the pump down considerably. In recent days, both Morgan Stanley and Goldman Sachs conceded that the Fed may have to raise rates into 2023 to bring down prices.
“The kind of door that the Fed is trying to get through, where they slow things down enough to get inflation down but not so much that they cause a recession is a very narrow door and I think it has gotten narrower,” English said. There’s a corresponding scenario where inflation stays stubbornly high and the Fed has to keep raising, which he said is “a very bad alternative down the road.”
Is it opposite day already?
Lets see - how many medium and small businesses can the Feds bankrupt? They are facing skyrocketing material and labor costs, and now the credit that many need to do business is going to cost them more too...
As long as the Federal Government is paying people not to work, not to be responsible (forgiving student loans), and subsidizing extremely poor behavior - all the interest rate jacking will do is hurt folks and further drive up costs.
I guess a massive nuclear torpedo aimed at the economy (that is already being beat down) is now considered wisdom...
Yardeni is right. The faster the FED raises, the sooner it can stop raising and eventually lower. But .75 is the likely amount for this time. I wish they’d do 1.0% but don’t see them doing that, even though the Bond market is telling the FED to step up the pace.
Which makes Bonds attractive and I’ve been laddering up with them.
Which bonds in particular?
And yet, the Fed acting seems to be a greater influence on the length and depth of the recessionary cycle. Solving problems, not so much.
All Treasury Bonds in my case. A ladder means various lengths. I have 3 month, 6 month, 1 year and 2 year bonds. I’m staying in the short end as rates go up, will go to somewhat longer duration bonds as rates reach their peak. Some of the bonds will be sold and held as cash to be put to work in stocks as rates peak and start to fall.
There is talk that junk bonds are attractive but I don’t know that market well enough to buy in. I prefer tax-free income anyway, don’t need to hit a higher tax bracket.
The FED is in a box and has been for decades. They were too slow to start raising and I would prefer a 1.0% raise but it doesn’t matter. My job is to react to what they do, not what I might wish they would do.
It’s like the weather, my griping would change nothing. Recessions are a necessary part of any relatively free economy. Our job is to survive them as best we can and be ready to strike when the economy starts to turn.
We’ll never live in an economy that expands all the time.
Gonna be a face ripper up or down.
they’ll raise the rates for a few months until the recession becomes blinding.
then they’ll lower rates and Biden will start pushing stimulus and the Republican house will punt it, and Biden will start blaming the republicans for the recession. Of course, the Republicans will then fold and vote for stimulus, causing higher inflation.
We’re f**ked.
99% of modern money and banking theories are BS.
Money’s ONLY true function is to serve as a easy way to resolve the problems in bartering. In other words if you have only a cow to take to the market and you want to purchase a goat, a sheep and 10 chickens, how do the various suppliers of the wanted items make change since one cow is worth more than the total of all the desired items?
If you recognize that money is nothing more than a mechanism to facilitate the making of change when trading, you will understand why we have inflation.
The simple reason we have inflation is that there are hundreds of thousands of people, maybe millions, who go to the market place to purchase (trade for) goods when they have not brought anything of equal value to the market place. All they have is paper money of doubtful value.
The cure for inflation is as simple as the reason for it and that is that the government should immediately stop attempting to control the market and the value of money. The federal government should do everything to encourage the production of goods and services. Further, the government should end all social welfare programs and close all government agencies other than those named in the Constitution so that the states can regulate those activities they see fit to regulate. In other words, require everyone to add value equal to what they wish to receive.
The first to be forced to get a real job should be the high paid federal government drones paid high salaries but who never have and never will create any goods or services of value to the market place.
2 year Treasuries at 4+%, not bad. At 5% they would be good for safe money.
They waiting till the market closes?
just announced .75bps
WASHINGTON, Sept 21 (Reuters) - The Federal Reserve’s aggressive drive to bring inflation down to its 2% target will take years to complete and come at a cost of notably higher unemployment and slower economic growth, according to projections from policymakers published on Wednesday that cast doubt on prospects for a so-called “soft landing.”
“2 year Treasuries at 4+%, not bad. At 5% they would be good for safe money.”
I don’t think US Treasuries are “safe money.”
will take years to complete and come at a cost of notably higher unemployment
The opposite of what is required.
The goal should be to put everyone to work, not give everyone free money. Free money = inflation.
Fed Hikes Rates Another 75bps, Sends Hawkish ‘Higher For Longer’ Signal With DotPlot
https://www.zerohedge.com/markets/fomc-3
Here’s the rate hike you were looking for.
1.0% are not the droids you’re looking for.
“Municipal bonds, Ted. Talking double-A rating. Best investment in America.”
Backed by the taxing power of the government, that's pretty safe.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.