Informist, Thursday, Mar 23, 2023
--US FOMC hikes federal funds rate target range 25 bps to 4.75-5.00%
--Further policy firming may be apt to hit 2% inflation aim
--Recent developments to weigh on econ activity, hiring
--US banking system sound and resilient
--Will factor in total rate increases before next hikes
--Will account for policy lags when mulling next rate hikes
NEW DELHI – The US Federal Open Market Committee raised the federal funds target range by 25 basis points for the second straight meeting to 4.75-5.00%, opting to keep up its monetary policy tightening in spite of much-publicised bank failures in the world's largest economy.
"The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time," the FOMC said in its statement.
This is a moderation in tone from earlier comments that ongoing rate increases would be appropriate. Regardless, CPI inflation was 6.0% in February, according to latest data, well above the US Federal Reserve's target, despite the policy rate being the highest since August 2007.
The committee was unanimous in its decision. It said inflation remained elevated and that it was attentive to all inflation risks. The FOMC refrained from attributing the price rise to Russia's invasion of Ukraine for the first time since the war broke out in February 2022.
The statement noted that job gains were robust and had picked up in recent months, with unemployment being low. Meanwhile, gains in spending and production were modest.
According to the median of the projections by US Fed officials, the policy rate is seen at 5.00-5.25% at the end of 2023, unchanged from the previous projection in December. This means a net rate increase of only another 25 bps, indicating the Fed's aggressive rate hike cycle – 475 bps in a year – is coming to an end.
However, seven of the 18 officials expected a higher Fed funds target range by the year-end, including one projection of 5.75-6.00%. Only one official anticipated rates at the current level, and none saw the target range lower by the end of the year.
Some analysts were of the view that the Fed could begin cutting policy rates in the latter half of 2023, particularly in the wake of the collapse of Silicon Valley Bank and its implications on the wider financial system in the US. The FOMC affirmed statements by US Fed Chair Jerome Powell and Secretary of the Treasury Janet Yellen since the bank failure on Mar 10.
"The US banking system is sound and resilient," the statement said. "Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation."
The extent of these effects was uncertain, the committee said. According to the median of Fed officials' estimates, personal consumption expenditure was pegged at 3.3% in 2023, up 20 bps from the last estimate, with core inflation seen higher at 3.6% for the year. The Fed's preferred inflation gauge is still set to average above 2% until 2025, the same as the last projection.
Estimates for GDP growth in 2023 were reduced again as the economy bears the brunt of the rate increases. GDP growth projections for 2023 were cut by 10 bps from December to 0.4%, down from 1.2% projected in September.
In addition to the rate actions, the committee decided to continue with the pace of trimming the US Fed's balance sheet, as outlined in its May policy review. The Fed trims its sizeable balance sheet at a pace of $95 bln a month starting in September, after beginning running off securities in June.
As of 0025 IST, the yield on the 10-year US Treasury note was down 10 bps on the day to 3.49%. End
US$1 = 82.66 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Reported by Aaryan Khanna
Edited by Avishek Dutta
For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.
Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.
Informist Media Tel +91 (11) 4220-1000
Send comments to feedback@informistmedia.com
© Informist Media Pvt. Ltd. 2023. All rights reserved.
Informist, Thursday, Mar 23, 2023
--US FOMC hikes federal funds rate target range 25 bps to 4.75-5.00%
--Further policy firming may be apt to hit 2% inflation aim
--Recent developments to weigh on econ activity, hiring
--US banking system sound and resilient
--Will factor in total rate increases before next hikes
--Will account for policy lags when mulling next rate hikes
NEW DELHI – The US Federal Open Market Committee raised the federal funds target range by 25 basis points for the second straight meeting to 4.75-5.00%, opting to keep up its monetary policy tightening in spite of much-publicised bank failures in the world's largest economy.
"The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time," the FOMC said in its statement.
This is a moderation in tone from earlier comments that ongoing rate increases would be appropriate. Regardless, CPI inflation was 6.0% in February, according to latest data, well above the US Federal Reserve's target, despite the policy rate being the highest since August 2007.
The committee was unanimous in its decision. It said inflation remained elevated and that it was attentive to all inflation risks. The FOMC refrained from attributing the price rise to Russia's invasion of Ukraine for the first time since the war broke out in February 2022.
The statement noted that job gains were robust and had picked up in recent months, with unemployment being low. Meanwhile, gains in spending and production were modest.
According to the median of the projections by US Fed officials, the policy rate is seen at 5.00-5.25% at the end of 2023, unchanged from the previous projection in December. This means a net rate increase of only another 25 bps, indicating the Fed's aggressive rate hike cycle – 475 bps in a year – is coming to an end.
However, seven of the 18 officials expected a higher Fed funds target range by the year-end, including one projection of 5.75-6.00%. Only one official anticipated rates at the current level, and none saw the target range lower by the end of the year.
Some analysts were of the view that the Fed could begin cutting policy rates in the latter half of 2023, particularly in the wake of the collapse of Silicon Valley Bank and its implications on the wider financial system in the US. The FOMC affirmed statements by US Fed Chair Jerome Powell and Secretary of the Treasury Janet Yellen since the bank failure on Mar 10.
"The US banking system is sound and resilient," the statement said. "Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation."
The extent of these effects was uncertain, the committee said. According to the median of Fed officials' estimates, personal consumption expenditure was pegged at 3.3% in 2023, up 20 bps from the last estimate, with core inflation seen higher at 3.6% for the year. The Fed's preferred inflation gauge is still set to average above 2% until 2025, the same as the last projection.
Estimates for GDP growth in 2023 were reduced again as the economy bears the brunt of the rate increases. GDP growth projections for 2023 were cut by 10 bps from December to 0.4%, down from 1.2% projected in September.
In addition to the rate actions, the committee decided to continue with the pace of trimming the US Fed's balance sheet, as outlined in its May policy review. The Fed trims its sizeable balance sheet at a pace of $95 bln a month starting in September, after beginning running off securities in June.
As of 0025 IST, the yield on the 10-year US Treasury note was down 10 bps on the day to 3.49%. End
US$1 = 82.66 rupees
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Reported by Aaryan Khanna
Edited by Avishek Dutta
For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.
Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.
Informist Media Tel +91 (11) 4220-1000
Send comments to feedback@informistmedia.com
© Informist Media Pvt. Ltd. 2023. All rights reserved.
