Ecoinometrics - The FOMC is thinking about thinking about a pivot
The Fed speaks FOMC May 3rd 2023.
Those investors holding their breath for the Fed pivot must have passed out for lack of oxygen already.
Another FOMC meeting, another 25bps rate hike, and still the same discourse coming out of chairman Powell’s mouth.
Or is that really the case? Wasn’t there some inflection in the Fed’s stance during the press conference following the FOMC meeting?
Let’s discuss that.
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The FOMC is thinking about thinking about a pivot
FOMC statement
If you haven’t followed the press conference following the FOMC meeting last week here are the key points:
The FOMC is raising the Fed Funds rate by another 0.25%.
The FOMC agrees that inflation at 5% is too damn high. The target is still 2%, there is no plan to raise the target to 3%.
The dual mandate of the FOMC is low unemployment and stable inflation. Right now the job market is tight and inflation is high. So naturally they are focused on the latter.
The FOMC acknowledges that the US economy is slowing down but they are waiting for more data to change their mind on the “higher rates for longer strategy”.
The FOMC is paying lip service to the strength of the banking sector, just as more regional banks are failing…
Now you have to remember that the Federal Reserve has only three ways to impact the financial markets and the real economy:
They control the Fed Funds rate which affects the short end of the yield curve.
They can print money to expand their balance sheet or sell assets to shrink it.
They can talk about doing (1) and (2).
Every time the Fed Chairman and other board members open their mouth they are exercising their 3rd power. And the effectiveness of that 3rd power depends on them being consistent about what they are saying they’ll do and eventually doing what they said they’d do.
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