Summary of today’s FOMC meeting: More Hikes, No Cuts

by Player896

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February 1, 2023 – Raises rates by 25 bps to 4.50-4.75%

  • The economy and labor market cannot fully work without 2% inflation and price stability. Ongoing increases are appropriate and the committee does not see rate cuts this year. Will continue to significantly reduce the balance sheet and maintain a restrictive stance for some time.
  • Currently in early stages of goods disinflation and expect to see disinflation in housing services. Labor market remains extremely tight, but hopes it will ease soon. That said, will need more evidence that inflation is on a sustained downward path, the moderation seen thus far is not grounds for complacency. Will not have sustainable 2% without a balance in the labor market.
  • Goods inflation too negative, will move higher in the coming months.
  • Very difficult to manage the risk of doing too little, does not want to go back in after pausing.
  • Still believes a sustainable 2% inflation without recession is possible. Will still require a slowdown in the economy. Admits that most forecasters do not see this as likely. (This seems incorrect/impossible given the facts at hand)
  • It is important that markets reflect the tightening the Fed is putting in. Will not persuade people to have a different forecast, but the Fed’s thoughts remain higher for longer.
  • While the bond market has priced in a lower terminal rate, it is irrelevant.
  • Equities are pricing in a rapid decline in inflation. The Fed does not share this view.
  • Full effect of rate hikes have yet to be felt.
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