Federal Reserve / FOMC Watch

A thread to discuss the Federal Reserve, and, more specifically, the FOMC and what they’re doing with the overnight rate.

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Inflation report today came out higher than expected…

…but it looks to be temporary. Futures markets didn’t move for rates in mid-2023 and prior. For rates after that point they now expect them about 25 bps higher than before.

The first increase in the overnight rate looks to be at some point in 2023 (same prediction as before) but now another one in early 2024 (vs a “we’re not so sure”-prediction of a rate increase at that time).

As you may know, the current target rate is 0-25 bps. The effective rate has been <10 bps for a while (Effective Federal Funds Rate - FEDERAL RESERVE BANK of NEW YORK).

Yeah, this thread will be a bit different from this:

Which is about the market rates and not Fed policy

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Rate hikes are comin’…

Futures markets responded in kind. It looks like they now expect (vs when I last looked) a rate hike late-2022/early-2023 instead of mid-to-late-2023. …and then another hike in mid-2023 vs late-late-2023.

I’ll believe it when they actually do it.

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Big moves, finally, in the futures markets…

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Fed Lifts Rates by Half Point in Biggest Hike Since 2000

Powell quashes talk of 3/4-point rate rise, fueling surge in stocks

The Federal Reserve approved a rare half-point interest rate increase and announced plans to shrink its $9 trillion asset portfolio starting next month, in a double-barreled effort to reduce inflation running at a four-decade high.

Well, I had better look at my interest rate forecast, just to be sure it’s looking good.

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If I’m reading the 30-day fed funds correctly, the markets are strongly expecting another 50 bps increase at the June 15 meeting and then another 50 bps at the July 27 meeting…eventually getting to about 3.75 in June of 2023 and leveling off there.

…maybe 75 now…

fwiw, I’m having trouble reading the crb markets…partly because there’s a meeting in both June & July…it looks like after the July meeting markets expect the overnight rate to be between 2.75 & 3.00. That would be a 200bp increase from now.

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Rate hikes are much needed after rate slashes in 2020

I hope some of these new fake ass useless companies go belly up

We talking insurance companies, or…?

Mostly tech so yes I will lump insurtech in there as well

The current target rate is now b/t 1.50 & 1.75.
The crb markets are implying that after the Jul 27 mtg, it’s going to be b/t 2.75 & 3.00.

I just don’t see a 125bp hike as being “possible”…but maybe it is.

I was actually a little disappointed

I wanted a round 100 bps

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If I’m reading the markets correctly, they’ve fully priced in a 75bps increase for July 27 and have about a 50% chance of giving @meep her round 100 bps.

Yeah, I read Mish Talk, and he had the following post up recently:

And I anxiously anticipate the 100 bp hike.


I need to update my yield curve graph that I look at. Thing is, I’m generally looking at it quarterly, but maybe I should look at it a little more frequently now.

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tl;dr: “I was not considering a 1.0 [percentage point increase] a week ago. But the inflation data was concerning enough that it means we have to keep our eyes open and our minds open.” However, Kashkari does not have a vote on the Fed’s rate-setting committee this year, but he participates in its meetings and shares his recommendations.

Minneapolis Fed’s Kashkari says he’s ‘open-minded’ about a 1 percentage point rate hike this month

Dismal new inflation data this week pushed Kashkari, long one of the most dovish Fed policymakers, into more aggressive thinking.

Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said Thursday that he’s “open-minded” about a full percentage point hike in the nation’s key interest rate, taking a more aggressive stance a day after dismal new inflation figures emerged.

Kashkari said in an interview that he will consider other data, such as housing and retail sales, due ahead of the Fed rate-setting committee’s July 26-27 meeting before settling on a recommendation.

“I don’t have a lean at this point,” Kashkari said. “I’m open-minded. I was not considering a 1.0 [percentage point increase] a week ago. But the inflation data was concerning enough that it means we have to keep our eyes open and our minds open.”

Kashkari does not have a vote on the Fed’s rate-setting committee this year, but he participates in its meetings and shares his recommendations.

Last month, he and most other Fed officials forecast a three-quarters percentage point rate increase in July, matching the June increase. Their aim is to cool off demand to help rein in the highest inflation the U.S. has seen in four decades.

But after the Bureau of Labor Statistics reported Wednesday that inflation hit 9.1% last month, investors have begun to think the Fed committee could raise rates by a full percentage point at its meeting at the end of this month. That would be the largest single increase in decades.

So far, other Fed officials have not shown support for such a large move, but also have not ruled it out.

“I continue looking for some good news to suggest things are moving in the right direction, and so far they are not,” Kashkari said.

He added he was disappointed to see in the most recent inflation report that price increases have not started to moderate.

“It surprised us,” he said. “It was higher than we expected and broader across categories.”

The Russian war in Ukraine has led to higher food and gas prices. But the report indicated that inflation is showing up in everything from rent to general services to airline prices.

“When we see inflation spreading to broader sectors of the economy, that gives us more concern,” he said.

Since the latest inflation reading, which was for last month, gas prices have come down a bit and there are some hopeful signs that other commodity prices are softening. But Kashkari said he will not take much comfort in that until it shows up in lower inflation numbers.

The Fed’s goal is to get inflation back down to about 2%. Kashkari said he and his colleagues are committed to doing so, but it may take a couple of years to get there.

“The public and American people should see meaningful progress over the course of this year,” he said.

One of the first places where the impact of the Fed’s rate hikes should show up is in the housing market, he said. Mortgage rates have gone up. And he’s hearing anecdotally that is leading to some cooling in residential real estate.

“We hear from mortgage loan officers that say their phones have stopped ringing,” Kashkari said. “But obviously home prices are still high and have still been climbing. We want to see more evidence that the housing market is not as frothy as it was.”

He said he’s been hoping that production and logistics problems, which have led to product shortages and boosted prices, would improve. But so far, he keeps seeing empty spaces on shelves when he goes to grocery stores and drugstores.

“I’m still amazed how many items are missing,” he said.

Kashkari joined the Minneapolis Fed in 2016 and, until last year, consistently opposed interest rate increases and was considered one of the most dovish of the Fed’s policymakers.

text at this link

Yes, that is what I see as well (reading the crb markets) - increase to 3.25-3.50 by the 12/14/2022 meeting, then the next move should be downward…probably at the 06/14/2023 or 07/26/2023 meeting. Of course, these predictions change quickly.