2023-06-16 04:55:25
The most obvious sign of this trend is the increase in the median key rate expected for 2023, which goes from 5.125% to 5.625%. Two further increases of 25 basis points will therefore take place this year. The midpoint for 2024 also rose, but only by regarding 25 basis points, from 4.3 to 4.6%.
Core PCE index revised up to 3.9% from 3.6% in 2023, GDP to 1.0% from 0.4% and UNR down to 4 .1% instead of 4.5%.
The statement indicated that the FOMC would decide how much further policy tightening might be appropriate – reinforcing our belief of further tightening to come.
9 participants planned two additional hikes this year, 6 participants planned less, and 3 anticipated more than two. This shows that the FOMC has more “hawkish” members even though the “doves” are also well represented.
A more “dovish” note following this June FOMC meeting: the midpoint in 2024-2025, which now indicates an accumulation of 225 basis points of reductions in 2024-2025, i.e. 25 basis points more than in March. The June midpoint indicates cuts of 100 basis points in 2024 (from 87.5 basis points in March) and 125 basis points in 2025 (from 112.5 basis points in March).
Our point of view :
It’s clear that the Fed’s gaze remains on the numbers and, in all transparency, the employment and inflation reports for May were probably instrumental in adopting a “hawkish” posture at this meeting.
The Fed may have decided to take a break in June 2023 because of the debt ceiling, and it probably did not have enough time between the conclusion of the agreement and the meeting in June to announce to the markets a possible change in decision following this pause. However, with the debt ceiling issue now settled, a pause without a hawkish statement might easily have led to an easing of financial conditions, which the FOMC does not want at this time.
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