Federal Reserve Largest Raises Rates Most Since 1994, Up 75 Basis Points as Expected

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    Helmholtz Watson

    The Federal Reserve raised rates by a 75 bp at their June meeting. The market was pricing in an 87% chance of a 75-basis point hike with the balance o
    [See the full post at: Federal Reserve Largest Raises Rates Most Since 1994, Up 75 Basis Points as Expected]


    Powell opening statement:

    Inflation is much too high
    It is essential we bring down inflation down
    Consumption spending remains strong
    Growth in business fixed investment is softening
    Housing is slowing
    Tightening in financial conditions could continue to temper growth
    Labor market has remained extremely tight
    Wage growth is elevated


    More Powell
    We expect labor supply and demand conditions to come into better balance
    Notes that projections for unemployment over the next two years have moved up
    Since Fed’s May meeting, inflation has surprised to the upside; in response to that, we decided to hike 75 bps


    Powell Q&A

    By this point we’d been expecting to see signs of inflation at least flattening
    We got CPI and data on inflation expectations and shifted
    We thought strong action was needed at this meeting
    We decided we needed to do more front-loading
    The next meeting could well be a decision between 50 bps and 75 bps
    Repeatedly cites a ‘more normal range’ rather than ‘neutral’
    Policymakers would like to see rates at a modestly restrictive level at the end of this year
    He has shifted from ‘neutral’ to a ‘more normal’ range now rather than and caveated that with data dependence.


    Fed’s George was the only Fed who dissented on the 75 bps move

    “The speed with which we adjust the policy rate is important,” she said, warning that “abrupt changes can be unsettling to households and small businesses.”

    Looking ahead, she said the case to continue hiking is “clear cut” and that inflation is showing no sign of decelerating so I don’t think there are any real policy takeaways here.


    Philly Fed President on Yahoo Finance

    If demand softens, 50 bps for July may be good
    We need to get to 2.50% and quickly
    75 bps helps us to get to neutral stance
    We should be above 3% by the end of the year
    No ready to decide on 50/75 for July 27 meeting
    If demand softens, 50 bps for July may be good
    We’re starting to see signs of softening demand

    The Fed is at 1.50-1.75% so getting to 2.50% might only be one meeting away.
    The market continues to price in a terminal top near 3.75%.


    FOMC minutes of the June 14-15 FOMC meeting

    Participants ‘concurred’ that inflation outlook had deteriorated
    High inflation warranted restrictive interest rates
    Most participants saw downside risks to growth, including the possibility that Fed hikes have a larger-than-anticipated impact
    Saw possibility of ‘more restrictive’ rates if hike inflation persisted
    Judged increase of 50 or 75 bps would likely be appropriate in July
    ‘Many’ participants judged there was a significant risk higher inflation could become entrenched if public questioned the Fed’s resolve


    NB There’s no mention of 100 bps which was an obsession for the market worried at the time.

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