The Federal Reserve raised rates by 25 bp to a target range of 4.50-4.75% in unanimous vote at their February meeting as expected. Market Fed futures pricing suggested a 96% chance of a 25 bps hike. The markets focused on “ongoing increases in the target range will be appropriate.” Fed says “Inflation has eased somewhat but remains elevated.” in a change from “Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.”
Federal Reserve FOMC Statement
Federal Reserve Announcement Wednesday 1 February 2023 14:00:00 ET
The FOMC raised the target rate by 25 basis points 4.50-4.75% from 4.25-4.50%
Conference To Follow At 2.30 ET PM With Chairman Powell
- Decision was unanimous for raise
- Repeats that “recent indicators point to modest growth in spending and production and that jobs gains have been robust”
- Statement says “ongoing increases in the target range will be appropriate”
- Unanimous vote
- Says “Inflation has eased somewhat but remains elevated.” in a change from “Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.”
“I guess I would say it this way. With we say for the first time the disinflationary process has started. We can see it. We see it really in goods prices so far. Goods prices is a big sector. This is what we thought would happen in the very beginning. “Chair Powell in Press Conference
FOMC dot plot and central tendencies (From Dec Meeting)
EOY 2023 4.8
- The dot plot from December 2022 shows the median rate at the end of 2023 at 5.1% vs 4.6% at the September 2022 projection
- For 2024, the median fed funds target rate is 4.1% versus 3.9% in September
- For 2025, the median fed funds target rate is 3.1% versus 2.9%
Market Reaction After FOMC (Updated)
U.S. Dollar Index fell 1.0% to 101.07, reaching its lowest level since late April.
- 10-Yr: +28/32. 3.397%. USD/JPY: 129.09. EUR/USD: 1.0971
- Dow +79.20 at 34165.19,
- Nasdaq +241.65 at 11826.21,
- S&P +48.93 at 4125.53
Yields Lower After Release on Day:
- 2-yr: -10 bps to 4.11%
- 3-yr: -13 bps to 3.79%
- 5-yr: -14 bps to 3.50%
- 10-yr: -13 bps to 3.40%
- 30-yr: -11 bps to 3.55%
U.S. Treasuries gravitated back to their highs, rallying past their best levels of the morning after the release of the FOMC Statement. Today’s advance left the 10-yr yield six basis points above its 200-day moving average (3.345%) while the 5-yr yield settled five basis points above the 200-day average of its own (3.457%).
Prior to release:
- 2-yr: UNCH at 4.21%
- 3-yr: -3 bps to 3.89%
- 5-yr: -5 bps to 3.58%
- 10-yr: -6 bps to 3.47%
- 30-yr: -7 bps to 3.59%
February 1 FOMC STATEMENT CHANGES via @Newsquawk
The lines of note that change FOMC: “Inflation has eased somewhat but remains elevated.” in a change from “Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.” Prior “In determining the pace of future increases in the target range” is now “In determining the extent of future increases in the target range”
The full statement from the February 2023 Fed Decision
Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation has eased somewhat but remains elevated.
Russia’s war against Ukraine is causing tremendous human and economic hardship and is contributing to elevated global uncertainty. The Committee is highly attentive to inflation risks.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 4-1/2 to 4-3/4 percent. 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. In determining the extent of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lael Brainard; Lisa D. Cook; Austan D. Goolsbee; Patrick Harker; Philip N. Jefferson; Neel Kashkari; Lorie K. Logan; and Christopher J. Waller.
Implementation Note issued Dec 14, 2022
Source: Federal Reserve
From the TradersCommunity Research Desk