Friday, June 2, 2023

Powell raised the benchmark rate by 25 bp and his words deflated the markets and their expectations in a pause

In some of Powell’s words: “there is still a way to go … wages are not the only driver of inflation … you have to balance the risk of not doing enough and not getting inflation under control … “Market are deflated due to expectations of a break from the Fed president, which did not occur. “Inflation will take time and it will be difficult to cut rates even if the markets have considered it.” The Dow and S&P are now negative

According to the Fed’s latest statement, in its third sentence in the third paragraph “further tightening of monetary policy may be appropriate” and it materialized today. With this, the benchmark interest rates are between 5.00% and 5.25% (vs 4.75% and 5.00% before).

A policy level tight enough to bring inflation down to 2% over time and that is what we are trying to do with our tool. I think slowing down was the right decision. I think it has allowed us to see more data and will continue to do so,” Powell replied.

Press conference:

  • Recent developments in the banking sector, where conditions have improved significantly since early March, and the US banking system is strong and resilient.
  • Last week we revealed Report of the Vice President of Supervision on the supervision and regulation of Silicon Valley banks by the Federal Reserve. The findings of the report are stated here need to review our supervisory standards and practices for a stronger and stronger banking system
  • From a monetary policy standpoint, we remain focused on our dual mandate to promote maximum employment and price stability for the American people. e Price stability is the responsibility of the Federal Reserve. S without price stability the economy does not work for anyone in particular without price stability we will not achieve a sustained period of good labor market conditions that benefit everyone today FMC increased its official interest rate to 1/4 percentage point.
  • we follow too To reduce our equity holdings going forward we will take a data driven approach To determine the extent to which further policy tightening may be appropriate, I will have more to say about today’s monetary policy actions after briefly reviewing economic developments.
  • There economy American and slowed considerably last year and real GDP growth of 0.9%, below the Mach trend economic growth in the first quarter of this year remained modest at 1.1%, despite the rebound in consumer spending
  • The activity of housing sector remains weak, to a great degree due to rising mortgage rates Higher interest rates and slower output growth also appear to be weighing on corporate fixed investment
  • It the labor market is still very tight. In the first three months of the year, the increase in employment was 345,000 jobs per month on average The unemployment rate remained very low in March, at 3.5% Even so, there are some signs that the supply and demand for work increase
  • There activity rate increased in recent months especially among those aged 25 to 54. Nominal wage growth has shown some signs of moderation and job vacancies have declined so far this year, but overall demand for jobs remains low.
  • We believe that inflation will take time to go down and therefore we will not lower rates despite the fact that the markets have considered it.
  • As for the US debt ceiling, he commented that it is a fiscal policy issue and that Congress and the administration are there for it, they are the ones who have designated it. “It is essential that the debt ceiling be raised on time so that the US government can pay all its bills when it is due. “Failure in this regard would have consequences for the US economy and could be very negative”

The statement speaks of an expansion of economic activity at a slower pace in 1Q23, although employment data remains strong and the unemployment rate at low levels. Inflation remains high.

In the third paragraph, he emphasizes that the determination of a firm monetary policy should be appropriate to return to inflation of 2% over time. In addition, in another paragraph he adds that recent indicators show modest growth in spending and production. “The Committee anticipates that some additional policies may be appropriate. In determining the extent of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which it affects economic activity and inflation, and economic development and financial”.

However, the ADP survey data was stronger than expected and may suggest that the Fed may continue. But on the other hand, the fall in the shares of regional banks after the failure of the First Republic Bank earlier this week put the balance on the other side, announcing that the Federal Reserve will pause after this increase, although so far the person responsible. politicians separate the interest rate policy from the tools to support the banking sector. It will be very interesting to see what he says in the press conference.

Before the announcement, the North American stock market showed green numbers, in the order of +0.14% for the Dow, +0.35% for the S & P 500 and +0.51% for the Nasdaq, and the euro / dollar price rising 0.44% to 1.1047. Once the announcement was over, the stock markets lost steam, although they are now back to their initial state awaiting directives from the press conference.

Nation World News Desk
Nation World News Desk
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