At last week’s meeting the Federal Open Market Committee (FOMC) raised the target range for the federal funds rate by 1/4 percentage point, bringing the target range to 5-1/4 to 5-1/2 percent.
The Fed is also continuing the process of significantly reducing their securities holdings. This is Quantitative Tightening which impacts longer duration interest rates than the short-term fed funds rate. This is a gradual process which was temporarily reversed during the recent banking crisis but is restarted.
Real Gross Domestic Product in 2Q23 grew 2.4% (annualized), a healthy growth rate.
The recession that was predicted due to the Fed’s campaign of raising interest rates hasn’t materialized. The MSM has published several articles discussing the soft landing that Jerome Powell mentioned during his speech last week.
Transcript of Chair Powell’s Press Conference
July 26, 2023
Since early last year, the FOMC has significantly tightened the stance of monetary
policy. Today, we took another step by raising our policy interest rate 1/4 percentage point, and we are continuing to reduce our securities holdings at a brisk pace.We have covered a lot of ground, and the full effects of our tightening have yet to be felt. …
July 26, 2023 Chair Powell’s Press Conference PRELIMINARY
Page 2 of 28
supply and demand in the labor market are coming into better balance. The labor force
participation rate has moved up since last year, particularly for individuals aged 25 to 54 years.
Nominal wage growth has shown some signs of easing, and job vacancies have declined so far this year. While the jobs-to-workers gap has narrowed, labor demand still substantially exceeds the supply of available workers.
Inflation remains well above our longer-run goal of 2 percent. Over the 12 months
ending in May, total PCE prices rose 3.8 percent; excluding the volatile food and energy
categories, core PCE prices rose 4.6 percent. In June, the 12-month change in the Consumer Price Index, or CPI, came in at 3.0 percent, and the change in the core CPI was 4.8 percent.
Inflation has moderated somewhat since the middle of last year. Nonetheless, the process of getting inflation back down to 2 percent has a long way to go…
So, the staff now has a noticeable slowdown in growth starting later this year in the forecast, but given the resilience of the economy recently, they are no longer forecasting a recession. … [end quote]
Could a Recession Still Be Years Away? Steady Growth, Moderating Inflation Improve Odds of Extended Expansion
If Fed achieves a soft landing, history suggests economy could keep growing four or five more years
By Greg Ip, The Wall Street Journal, Updated July 27, 2023
On Wednesday, Fed Chair Jerome Powell said a soft landing has long been his base case, and his confidence in it had grown. “We’ve seen so far the beginnings of disinflation without any real costs in the labor market,” he told reporters after the Fed’s policy meeting. “That’s a really good thing.”
Powell also disclosed that the Fed staff, which earlier this year projected a recession, no longer does. The staff forecast doesn’t necessarily reflect policy makers’ own views. …
Still, there is a plausible case this time is different. In the past, inflation was usually caused by excess demand. This time, a bigger culprit is disrupted supply—of goods, transportation, commodities, labor—in the wake of the pandemic and Russia’s invasion of Ukraine.
Supply is returning… [end quote]
Greg Ip’s optimistic article cautiously predicts a soft landing and several years before the next recession.
The Control Panel shows that the rising interest rates have not put a damper on the rising stock market. The Fear & Greed Index is in Extreme Greed. The trade is risk-on as stocks and junk bond prices are rising while Treasury prices are falling (interest rates are rising).
The USD is in a falling trend. Oil is rising while natgas has stabilized at a low price level. Gold suddenly popped.
Yellow, the beleaguered trucking company that received a $700 million pandemic loan from the federal government, notified staff on Friday that it is shutting down and laying off 30,000 employees at all of its locations. Yellow is one of the largest freight trucking companies in the United States, and its downfall could have a ripple effect across the nation’s supply chain.
Disrupting supply chains could increase inflation. Only time will tell whether the impact will be enough to affect the Fed.
The METAR for next week is sunny.