FOMC: A prediction, maybe

Investment Analysis Clubs Macro Economic Trends and Risks
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There’s no profit in it, but that never stopped me before; I’m going to predict the Fed will raise interest rates another quarter of a point, in line with that of the last meeting.

I’ve seen lots of wags suggesting that they were going to raise a half point (why?), and others suggesting the time for raising interest rates is over, but I’m going to go with the “steady hand on the tiller” approach.

Beginning in March of last year, here’s what’s happened:

.25 - .50 - .75 - .75 - .75 - .75 - .50 - .25. Nice and smooth, even if belatedly aggressive.

If they were to eliminate an increase altogether, that would be a 0, obviously, but if inflation hasn’t cooled enough they would have to reinstitute another increase, which would look wobbly even to the most sympathetic viewer.

On the other hand, several were advocating a half-point rise, even though (to me, at least) it looked like inflation was slowly, at last, beginning to weaken. Consumer sales are down slightly. Housing has come down for 12 months in a row, now. Producer prices have dropped. Shipping prices have cratered. Actual inflation came down, but only slightly. There are other ticks in the opposite direction, but it’s like bringing an airplane in, it isn’t always a perfectly smooth descent. Except a few chops here and there.

Anyway, in spite of the banking fiasco of late I’m expecting the Fed to keep the rise to a minimum, which is a quarter point. To go to zero would delight the market, but if they have to reinstitute it would be a mood killer - and the very anthesis of a soft landing.

It may be foolish to predicate a prediction on “smoothness”rather than hard data, but not everything is captured in numbers, and in any event the numbers seem to be edging slowly down. Just a little more sand in the gears may be appropriate.

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Two weeks ago, I was split between 25 and 50. Then a few days later I leaned to 25. Then immediately after the SVB fiasco (Friday midday), I went to 25. Then over that weekend, I went to split between 0 and 25 (due to bailout talk, systemic issues, signature, etc). Now, as of 10 minutes ago, I’m back to split between 25 and 50. Why? Because 10 minutes ago, the ECB raised by 50. I have little doubt that the Fed and ECB talk regularly and coordinate these things as closely as possible.

Ironically, the fed doing 50 might be perceived as a “show of strength” by some, in the sense of “we’re going to do what we planned against inflation regardless of other issues going on at the time”. But I strongly disagree with this, the fed really needs to tread carefully because as everyone knows, sudden changes (in whatever, but in this case interest rates) can, and does, break things, and if this is the first sign of breakage (regional banks), then nobody wants to see what a continued breakage of the banking system looks like!

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I agree with you. I think the Fed will raise by 0.25% to make the statement that they are tending to inflation (Macroeconomics at the highest level) while the failure of a bank or two isn’t Macro enough to disrupt their strategy…though it was enough for them to create a new lending facility.

In fact, I tried to bet DH a quarter (my maximum gamble) that the raise would be 0.25% but couldn’t make the bet because that’s exactly what he thinks. :slight_smile:
Wendy

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I agree. My compromise with zero rate hike.

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I’m still on the fence between .25 and .50.

CPI is still way above the target of 2%. Now that the ECB has raised .50, I lean more towards that. I’ll bet @WendyBG a quarter :wink:

'38Packard

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Does that mean you are taking the quarter? :rofl: :rofl: :rofl:

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Don’t confuse what should be done with what will be the politically expedient thing to do and will be done.

IP

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More like 25 basis points has been in the making for quite a while now.
The FED rises above politics but politics do not rise above the FED.

Dealbook by Andrew Ross Sorkin, NYT column no link sorry.

snippet from March 16,

What will the E.C.B. do today? The central bank is set to announce its latest rates move at 9:15 a.m. Eastern. But while Christine Lagarde, the bank’s president, had all but committed to a half-percentage-point increase, traders and economists are increasingly betting that it will raise rates by only a quarter of a point to avoid further hammering the value of banks’ bond holdings.

Further out, the Fed is still expected to raise rates by a quarter of a point next week. Analysts also predict that rate cuts could come in the back half of the year, if economic data show that inflation is stabilizing. (Some evidence for that came from yesterday’s retail sales and producer price data.) Bonds have rallied in recent weeks on hopes that interest rates won’t go much higher and amid worries about a recession.

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0.375?

The Captain

20, 19, 18, 17, 16, 15…

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I say 1/4 … anything else will scare people to much.