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The market has adjusted its views on how the Federal Reserve will raise interest rates

The Federal Reserve building is visible before the Federal Reserve Board is expected to announce plans to raise interest rates in March, as it focuses on fighting inflation in Washington, DC, January 26, 2022.

Joshua Roberts Reuters

The Federal Reserve is expected to start raising interest rates next month and will not slow until 2023, although the slope of the increase may be slightly milder.

Events over the past week, including statements by many Fed officials and, to a lesser extent, geopolitical turmoil, have convinced markets that the first rate change will be just a quarter of a percentage point.

This change came after at a meeting of the Federal Open Market Committee on March 15-16, traders estimated the step twice as big. At the meeting, central bankers poured out the idea of ​​the need to increase by 50 basis points, and New York Fed President John Williams said last week that the case is not a “necessary argument” for the move.

However, it is did not make investors less nervous about what the road ahead will look like.

“I don’t care if they’re 50 [basis] points for the gate or not. But I also think you shouldn’t overdo it here, “said Jim Paulsen, Leuthold Group’s chief investment strategist.” You can do 25, and if you want to do another one soon, you can do it instead of adding an extra break or uncertainty. “

Indeed, markets were volatile in 2022 as inflation unfolded and pushed the Fed into a position in which it essentially forced to linger politics. Consumer prices over the past year increased by 7.5%.well ahead of the 2% level that the Fed considers healthy for inflation.

This year, markets are playing a game of guesswork, trying to figure out how far the Fed will go. The current expectations are confidence in the increase in March and a probability of just over 50% that the Fed will lead to seven increases this year, which will lead to an increase at each of the other meetings, according to the CME Group.

The Russian-Ukrainian conflict added another wrinkle to the Fed. Prices for some goods, such as energy and grain, rose higher as the prospect of a full-scale Russian invasion intensified. Fed officials will need to weigh the benefits of raising rates to fight inflation against any potential economic slowdown it may cause.

However, Polsen and others say they don’t think the situation is affecting the Fed’s thinking, and most economists expect the rate hike to continue as expected.

Late last week, for example, JPMorgan Chase chief economist Bruce Cassman said he expects the Fed to rise at each of the next nine meetings.

Danger of “Shock and awe”.

Paulsen said he agrees that the Fed should raise rates, but is doing it on purpose.

“If you’re going to cause shock and trepidation outside the gate or let it hang, it only adds to the uncertainty,” he said. “It would be more helpful if the Fed said we would reach that point, but we will be measured.”

У remarks MondayFed Gov. Michelle Bowman reaffirmed the idea when she hinted that a 50-point increase in March is still under consideration.

“I will closely monitor the data to judge the appropriate amount of increase at the March meeting,” Bowman said.

Stock Picks and Investment Trends from CNBC Pro:

Citigroup economist Andrew Holenhorst said “we will take Bowman’s speech seriously that such a big first step at least depends on future internal data.”

One big data point comes on Friday when the Department of Commerce publishes a report on personal income and expenditure for January, which will include a price index for personal consumer spending, the Fed’s preferred inflation rate. Policymakers will focus on so-called PCE core data, which excludes food and energy and is expected to show growth of 5.1% over the same period last year, including a jump of 0.5% for the month.

If this estimate proves to be accurate, it will be the fastest acceleration in a year since September 1983.

Chicago Fed President Charles Evans said in a speech in New York on Friday that “the current position of monetary policy is erroneous and requires significant adjustments.” The words were noticeable from a member of the FOMC, who is generally considered one of the most pigeon-like, or in favor of free politics and low interest rates.

“Obviously, this is another understatement to say that inflation has far exceeded the moderate steady 2% surplus that the Committee had previously sought, and that policy adjustments are needed,” Evans said. “But how big should it be?”

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The market has adjusted its views on how the Federal Reserve will raise interest rates

The Federal Reserve building is visible before the Federal Reserve Board is expected to announce plans to raise interest rates in March, as it focuses on fighting inflation in Washington, DC, January 26, 2022.

Joshua Roberts Reuters

The Federal Reserve is expected to start raising interest rates next month and will not slow until 2023, although the slope of the increase may be slightly milder.

Events over the past week, including statements by many Fed officials and, to a lesser extent, geopolitical turmoil, have convinced markets that the first rate change will be just a quarter of a percentage point.

This change came after at a meeting of the Federal Open Market Committee on March 15-16, traders estimated the step twice as big. At the meeting, central bankers poured out the idea of ​​the need to increase by 50 basis points, and New York Fed President John Williams said last week that the case is not a “necessary argument” for the move.

However, it is did not make investors less nervous about what the road ahead will look like.

“I don’t care if they’re 50 [basis] points for the gate or not. But I also think you shouldn’t overdo it here, “said Jim Paulsen, Leuthold Group’s chief investment strategist.” You can do 25, and if you want to do another one soon, you can do it instead of adding an extra break or uncertainty. “

Indeed, markets were volatile in 2022 as inflation unfolded and pushed the Fed into a position in which it essentially forced to linger politics. Consumer prices over the past year increased by 7.5%.well ahead of the 2% level that the Fed considers healthy for inflation.

This year, markets are playing a game of guesswork, trying to figure out how far the Fed will go. The current expectations are confidence in the increase in March and a probability of just over 50% that the Fed will lead to seven increases this year, which will lead to an increase at each of the other meetings, according to the CME Group.

The Russian-Ukrainian conflict added another wrinkle to the Fed. Prices for some goods, such as energy and grain, rose higher as the prospect of a full-scale Russian invasion intensified. Fed officials will need to weigh the benefits of raising rates to fight inflation against any potential economic slowdown it may cause.

However, Polsen and others say they don’t think the situation is affecting the Fed’s thinking, and most economists expect the rate hike to continue as expected.

Late last week, for example, JPMorgan Chase chief economist Bruce Cassman said he expects the Fed to rise at each of the next nine meetings.

Danger of “Shock and awe”.

Paulsen said he agrees that the Fed should raise rates, but is doing it on purpose.

“If you’re going to cause shock and trepidation outside the gate or let it hang, it only adds to the uncertainty,” he said. “It would be more helpful if the Fed said we would reach that point, but we will be measured.”

У remarks MondayFed Gov. Michelle Bowman reaffirmed the idea when she hinted that a 50-point increase in March is still under consideration.

“I will closely monitor the data to judge the appropriate amount of increase at the March meeting,” Bowman said.

Stock Picks and Investment Trends from CNBC Pro:

Citigroup economist Andrew Holenhorst said “we will take Bowman’s speech seriously that such a big first step at least depends on future internal data.”

One big data point comes on Friday when the Department of Commerce publishes a report on personal income and expenditure for January, which will include a price index for personal consumer spending, the Fed’s preferred inflation rate. Policymakers will focus on so-called PCE core data, which excludes food and energy and is expected to show growth of 5.1% over the same period last year, including a jump of 0.5% for the month.

If this estimate proves to be accurate, it will be the fastest acceleration in a year since September 1983.

Chicago Fed President Charles Evans said in a speech in New York on Friday that “the current position of monetary policy is erroneous and requires significant adjustments.” The words were noticeable from a member of the FOMC, who is generally considered one of the most pigeon-like, or in favor of free politics and low interest rates.

“Obviously, this is another understatement to say that inflation has far exceeded the moderate steady 2% surplus that the Committee had previously sought, and that policy adjustments are needed,” Evans said. “But how big should it be?”

Reported by Source link

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