Fed Pencils in Two More Interest Rate Hikes in 2023

The FOMC statement revealed little. But the post-FOMC press conference showed a much more hawkish Fed with huge concerns over wages and core the PCE.

My initial reaction to the FOMC Summary of Economic Projections (SEP) document was the Fed is Totally Confused.

I just played the press conference video and Fed Chair Jerome Powell stated “I never have a lot of confidence where the Fed Funds Rate will be that far in advance.”

To a second question Powell answered “I would not put too much on forecasts even one year out because they are so highly uncertain.”

I view uncertainty as a good thing, stating “The [SEP] results look like one of my favorite sayings: I don’t know and no one else does either, especially the Fed.”

 FOMC Press Conference

Housing and Rent

Powell: “In terms of housing services inflation, we are seeing that new rents, new leases, are coming in at low levels. It’s really a matter of time as that goes through the pipeline. I think any forecast that people are making right now about inflation coming down this year will contain a big does of disinflation from that source. That’s coming slower than we would have expected.”

Labor Market

Powell: “The labor market has surprised many if not all analysts over the last couple of years with its extraordinary resilience. 

“Many analysts would say the key to getting inflation down is to have continued loosening of Labor market conditions.”

Risks 

Powell: “The risks of overdoing it and underdoing it are getting closer in balance. I still think, and my colleagues agree that the risks to inflation are to the upside. We don’t think we are there. We would like to see credible evidence that inflation is topping out and beginning to come down.”

Chris Rugaber AP: Why signal additional rate hikes? Why not give it more time? It’s surprising to see so much hawkishness in the dots. 

Powell: “We are two and a half years into this. Forecasters, including Fed forecasters, have consistently thought inflation was about to turn down, and have been wrong. If you look at core PCE inflation, overall, over the last 6 months, you’re not seeing a lot of progress. It’s running at a level over four-and-a-half percent, far above our target.”

Key Inflation Questions

• Will we march down Biden’s very inflationary clean energy path?
• Will Trump win and undo everything?
• What happens to China and Taiwan?
• Will de-globalization and decarbonization still be underway internationally?

Those are just a few of the questions that no one can honestly say they know the answer to yet each of them is very important for the inflation outlook.

We would be in a much better position now if the Fed had more diversity of opinion on inflation, endless QE, and positions every member of the Fed agreed with, all of them wrong for years.

Regarding Rent

Powell: Rent disinflation is “coming slower than we would have expected.”

Not in this corner.

For discussion, please see Tame CPI Inflation? Not With Shelter Up Another 0.6 Percent

A Pause Then What?

Earlier today I posted A Fed Pause in June, Hike in July, Then Nothing Till 2024?

I will take a post-FOMC snapshot tomorrow to show how things changed after the press conference.

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