“The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.”
emphasis
Then the stresses in the banking system became apparent and inflation eased somewhat quicker than expected. The FOMC statement in March suggested some additional tightening may be appropriate:
“The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.”
“We expect the Fed to hike by 25bp at next week’s meeting. More importantly, we think
the Fed will signal a pause in June, with a weak bias to hike rather than cut rates going
forward. … The challenge will be to credibly signal an extended hold and push back against
market pricing of rate cuts (roughly 60bp in 2023 and 150bp in 2024 at the time of this
writing), particularly given the latest bout of banking sector stress.Note that the Fed will have the results of the 2Q Senior Loan Officer Opinion Survey
(SLOOS) in hand for the May meeting, although the survey results will only be made
public in the following week. The Beige Book shows that six of the 12 regional Fed
banks reported further credit tightening since the January survey. This suggests that the
SLOOS data will reinforce the case for a pause in June.
emphasis added
And from Goldman Sachs economists:
The FOMC is likely to deliver a widely expected 25bp rate hike to 5-5.25% at its May meeting, but the focus will be on revisions to the forward guidance in its statement. We expect the Committee to signal that it anticipates pausing in June but retains a hawkish bias, stopping earlier than it initially envisioned because bank stress is likely to cause a tightening of credit.
| GDP projections of Federal Reserve Governors and Reserve Bank presidents, Change in Real GDP1 | ||||
|---|---|---|---|---|
| Projection Date | 2023 | 2024 | 2025 | |
| Mar 2023 | 0.0 to 0.8 | 1.0 to 1.5 | 1.7 to 2.1 | |
1 Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.
The unemployment rate was at 3.5% in March. To reach the mid-point of the FOMC projections for Q4 2023, the economy would likely have to lose 1 to 2 million jobs by Q4.
| Unemployment projections of Federal Reserve Governors and Reserve Bank presidents, Unemployment Rate2 | ||||
|---|---|---|---|---|
| Projection Date | 2023 | 2024 | 2025 | |
| Mar 2023 | 4.0 to 4.7 | 4.3 to 4.9 | 4.3 to 4.8 | |
2 Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.
As of March 2022, PCE inflation increased 4.2 percent year-over-year (YoY), down from 5.1 percent YoY in February.
| Inflation projections of Federal Reserve Governors and Reserve Bank presidents, PCE Inflation1 | ||||
|---|---|---|---|---|
| Projection Date | 2023 | 2024 | 2025 | |
| Mar 2023 | 3.0 to 3.8 | 2.2 to 2.8 | 2.0 to 2.2 | |
PCE core inflation was up 4.6% in March year-over-year. This remains a concern for the FOMC, however this includes shelter that was up 8.3% YoY in March.
| Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents, Core Inflation1 | ||||
|---|---|---|---|---|
| Projection Date | 2023 | 2024 | 2025 | |
| Mar 2023 | 3.5 to 3.9 | 2.3 to 2.8 | 2.0 to 2.2 | |