The Federal Reserve’s coverage assertion was fairly clear on Wednesday. In distinction, Fed Chairman Jerome Powell was much less so, a prime Fed watcher mentioned.
“The difference between this statement and the February statement was pretty clear communication. What the additional messaging we were supposed to take from the press conference is very unclear,” mentioned Adam Posen, president of the Peterson Institute for International Economics.
The Fed’s unanimous vote Wednesday to boost rates of interest 1 / 4 level instructed that officers had consensus on the highway forward for the economic system.
But as an alternative, there have been extra questions than solutions.
“Communication has not been this team’s strong point,” Posen mentioned.
See: This is why shares tumbled after Fed’s Powell signaled just one extra price hike in 2023
Krishna Guha, vice chairman of Evercore ISI, mentioned the preliminary Fed announcement was acquired nicely sufficient, however “markets soured as Powell spoke and slumped afterwards.”
As a consequence, shares
DJIA,
SPX,
ended sharply decrease on Wednesday.
Here are 4 essential questions that economists flagged within the wake of Powell’s press convention:
How dangerous will the approaching credit score crunch be?
Powell mentioned that it was simply too quickly to know the way extreme the tightening of credit score can be for households and companies.
“It is just so recent. It is very difficult There’s so much uncertainty,” Powell mentioned.
Scott Anderson, chief economist at Bank of the West, mentioned “in the end, it appears the majority of FOMC participants saw the additional bank credit-tightening due to the banking system instability over the past two weeks as equivalent to one additional 25-basis-point rate hike from the Fed.”
Ian Shepherdson, chief economist at Pantheon Economics, mentioned that he was frightened “the risk of an aggressive tightening of credit conditions is quite severe, not least because surveys of both borrowers and lenders make it clear that lending standards already have been tightening for a year.”
The Fed appeared nervous, however not panicked, he mentioned.
Was this the final price hike?
Powell mentioned Fed officers had been unsure concerning the path forward for rates of interest. He burdened that the Fed believes “some” price hikes “may” be mandatory.
But analysts mentioned the Fed chairman appeared to open the door for this to be the final price hike for some time.
“There is a good chance that this is the last hike of this cycle, barring surprisingly strong inflation or jobs reports in the next few months,” mentioned economists at Contingent Macro, in a observe to purchasers.
Economists at Bank of America disagree. They see the Fed mountaineering charges as soon as extra in May, to a terminal price of 5%-5.25%.
“We think the risks are in the direction of an earlier end to the tightening cycle,” mentioned Michael Gapen, U.S. economist at Bank of America Securities.
Investors within the by-product markets see a fair probability of a price hike in May, based on the CME FedWatch instrument.
Will there be price cuts this 12 months?
“Rate cuts are not our base case,” Powell mentioned.
The central financial institution’s “dot plot” penciled in yet one more price hike, to a variety of 5%-5.25%, and no different modifications.
But Bill Adams, chief economist of Comerica Bank in Dallas, mentioned an preliminary price lower might come inside three to 9 months.
“For the time being, I am lightly penciling in a first cut in September,” Adams mentioned, in a observe to purchasers.
Also: Powell says no price cuts in 2023, however the bond market doesn’t agree
Traders see the primary price lower coming in July, based on the CME FedWatch instrument.
What was Powell’s largest takeaway from the collapse of Silicon Valley Bank?
Powell appeared struck by how quickly depositors fled Silicon Valley Bank two weeks in the past.
“We know that SVB experienced an unprecedented and rapid and massive bank run,” he mentioned. “It was a very large group of connected depositors in a very, very fast run, faster than the historical record would suggest,” Powell mentioned.
“The speed of the run is very different from what we’ve seen in the past but it does kind of suggest there is a need for possible regulatory and supervisory changes because supervision and regulation need to keep up with what’s happening,” he mentioned.
Read extra: Powell says ‘all depositor savings’ in U.S. are protected
Source web site: www.marketwatch.com
