The Dot Plot Shows Fed Projects Interest Rate Cuts Next Year

March 22, 2023

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6:56 pm

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57 comments

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Economics

Please consider the Summary of Economic Projections from the FOMC Meeting March 21-22, 2013.

Economic Projections

Economic Projections Synopsis

Interest Rates: The range of rate hike projections for 2024 and 2025 is stunning. For 2025 the top projection is 5.6 percent with the bottom at 2.4 percent. The Median December projection for 2024 is 4.1 percent.
Unemployment: For December 2023, the Fed projects unemployment will be between 4.4 and 4.7 percent.
Inflation: It will take until 2025 for inflation to return to the Fed’s 2.0 percent target
GDP: Year-over-year GDP (December 2022 to December 2023) will be weak, 0.4 percent to 1.0 percent. For 2023 the range is 0.0 percent to 0.8 percent.

As usual, the Fed projects no recession as far as the eye can see. However, one participant forecast -0.5 percent, likely believing in a minor recession.

Hooray!

I managed to catch the tail end of the FOMC press conference

Powell said “Rate cuts are not in our base case” even though the dot plot suggests they are, at least for 2024.

Fed Says “Banking System is Sound”, Hikes Base Interest Rate by a Quarter Point.

For the full FOMC statement as well as a short synopsis, please see Fed Says “Banking System is Sound”, Hikes Base Interest Rate by a Quarter Point.

The Fed did not say anything about bank failures in the US or Europe nor anything about US dollar swap lines to foreign central banks.

This post originated on MishTalk.Com.

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david halte

1 year ago

Previous to the mortgage crisis, the Fed refrained from policy actions during election years, this would be viewed as manipulation. No amount of Russian Facebook posts can overshadow a 2 percent drop in rates. The risk to the Fed, is if the downturn occurs in 2014, it would be bad news for the incumbents, and the Fed can be accused of election manipulation by lowering rates that benefit the progressives.

The Fed wants to use the 2016 election as a template. GDP fell to 0.5 percent in 4Q’15 and 1Q’16. The stock market tanked in Aug’15. Jan’16, Yellen took 10-year yields down to match the historic lows of the mortgage crisis, and held rates suppressed at historic lows until a few weeks before elections, where yields immediately increased 40 percent. Through some wizardry, Yellen’s rate restraint did not increase the Fed’s balance sheet. GDP recovered by 2Q’16, so did the stock market, and housing sales along with their inflated prices. The monetary manipulation did not help Hillary, but allowed Obama and his liquidity dependent policies to leave office sans recession.

Once Yellen became Chairman in Feb’14, yields on 10-year Notes steadily declined through Jan’15 to lows of the mortgage crisis. Even though the crisis was 7 years earlier, and the end of QE was announced in Oct’14. The massive amount of fiat Notes, that kept rates suppressed at crisis lows, will come due in 2024. And pressure the Fed to repurchase, otherwise long rates will rise. The Fed’s end of QT and start of QE may disappoint the pivot pushers that expect lower rates. Significant liquidity will be required just to keep long rates stable.

jivefive98

1 year ago

Cutting of rates. Just in time for Biden to begin seriously running for re-election. He has to win a second term or have history consider him a “one-term failed president.” Am I the only one who saw this a year ago? My next prediction: Biden aint gonna care one whiff about inflation and raising rates once he’s in the clear.

Doug78

1 year ago

Sivergate and Signature are outers due to their dependence on crypto lending so that they got into trouble is not surprising. Powel said something interesting. He said the speed of the withdraws at SVB was unprecedented in history. Apparently the ability to withdraw truly massive amounts of money and transfer it to another institution in a finger-snap does have some downsides especially when the big depositors equally have instant communication as well. Together it can drain the money out of a bank in record time. Powel said that the Fed has to study this new phenomena and find a way to short-circuit it. The reaction to the fear of something bad happening can cause the bad thing to actually happen “The only thing we have to fear is fear itself” is true. I am not sure how the Fed could do this but I wonder if the accelerated rollout of FedNow, the new real-time payments system of the Fed, might have something to do with it or perhaps the introduction of the CBDC sooner than expected. We will see. Any ideas?

Lisa_Hooker

1 year ago

Reply to Doug78

FedNow is being implemented to make explosive hyperinflation much more interesting.

You will need your AI to manage the transfers because you won’t be able to follow what’s happening.

Doug78

1 year ago

Reply to Lisa_Hooker

I need an AI to manage my money now. Good thing my wife likes number crunching.

Scooot

1 year ago

Reply to Doug78

Most banks here in the UK place limits on how much you can withdraw immediately at a moments notice on a daily basis. Something usually between £20 & £50k depending on the bank and the account. I expect some people or businesses have larger limits but it seems more difficult than it was at SVB. I’m surprised it was so easy. They make withdrawing cash even more difficult. All for security & money laundering reasons but perhaps it’s also to protect the banks a little from unexpected runs.

Eg link to supportcentre.natwest.com

Doug78

1 year ago

Reply to Scooot

I think in Canada they have something similar but I am not sure. One thing SVBN has shown is that large clients can be a curse. In all businesses being too dependent on one or a few large clients is very dangerous and I suppose this is true for banks too because when they go you have nothing less. Maybe banks will start to refuse large clients? Now that would be change.

Lisa_Hooker

1 year ago

Reply to Doug78

Paraphrasing the old saw:

If you owe the bank 500,000 you have a problem.

If you owe the bank a billion they have a problem.

On another note:

In the US if you want say $10k in cash you have to ask the bank to order it from their Fed – one week.

Largest denomination is $100 which is about enough for a moderate dinner for one without any alcohol.

Doug78

1 year ago

Reply to Lisa_Hooker

Reminds me of this excellent explanation of banking by the Three Economists:

link to youtube.com

Doug78

1 year ago

Reply to Doug78

Alternately we can look at the math:

link to youtube.com

No we know how Fed Governors are chosen.

8dots

1 year ago

TNX down to close a gap.

JackWebb

1 year ago

Reply to 8dots

Yield or price?

worleyeoe

1 year ago

I like the one who voted for 6%. Bullard most likely has his s**t together. Nice!

When the labor market see’s 6-8 weeks of 235K 1st time unemployment claims, then we can say a recession is around the corner. Until then, the Fed will be fighting two fronts: inflation and everyone screaming for rates cuts to sooth financial markets.

Was ANYONE surprised that the Fed was advising SVB since 2019 to update its risk-management strategy? The quants at the Fed have known since day one when the FFR hit .25% and outlined a two year no increase strategy on their internal slack channel that this day of reckoning was coming. It’s here, JPowell just as expected, so everyone can stop acting all surprised. You hear me, Elizabeth Warren?

Doug78

1 year ago

Reply to worleyeoe

SVB had received six citations from the Fed and the bank did nothing. Conforming to the citations is not legally mandatory but to ignore them is about as dumb as you get. In the investigation it will be very interesting to find out why.

WarpartySerf

1 year ago

Reply to worleyeoe

“I like the one who voted for 6%.”

Not me. When faced with 15% inflation (same as today, non-Chinese CPI in 1982), Volcker raised the Fed Funds rate to 16%.

That means Powell would need 40 more .25% rate increases (in a row) going forward to begin to do the job on inflation that Volcker had to do. The Fed has totally screwed America.

KidHorn

1 year ago

Reply to worleyeoe

SVB did what every bank is doing. The current bank failings are due to bank runs. Something that can bring any bank down, no matter how well it’s run.

Sunriver

1 year ago

Banks a Value Trap for a decade for those that survive?

Given the difficulty that banks will have lending in a high interest rate environment, and the ‘maturity’ of many bank assets taking possibly a decade to realize any gains, a Value Trap is very possible at JPM, BAC, C, WFC.

However, the FED knows that just ‘a couple more mid-sized bank failures‘ will cause all asset classes, outside of possibly gold, to falter. Raising the rates today 03/22/2023 may cause just that; ‘a couple more mid-sized bank failures‘.

S&P at 2,800? Lower? A time to cleanse the 0% interest rate era? Most Likely the FED’s main goal today.

Lastly, how is the Federal Government going to finance our debt?

Sounds like tax hikes and servicing cost of the federal debt north of $1 trillion per year to me.

JackWebb

1 year ago

Reply to Sunriver

Lastly, how is the Federal Government going to finance our debt?

By inflating it away. See the 1970s.

KidHorn

1 year ago

Reply to Sunriver

My guess is the big banks will emerge stronger than ever. They’ll swallow the little guys.

Directed Energy

1 year ago

Too many people are stuck with 2.8% mortgages. Mortgage rates need to go down to keep people mobile!

jhrodd

1 year ago

Reply to Directed Energy

Why do people need to be mobile? I lived in the same house for 35 years, if I wanted to be mobile I wouldn’t have bought a house.

JackWebb

1 year ago

Reply to jhrodd

The reason the 10-year Treasury anchors the 30-year fixed mortgage rate is because its duration is 7 years, which matches the average holding period for a house. At least that’s how it was for a long time. Mobility has declined in the last decade or two, but people do move. That said, if I’m a home builder or mortgage lender, the lean times will persist. Those who can stay put will do so.

vanderlyn

1 year ago

Reply to jhrodd

amerikans are less mobile each decade as we get fat dumb and happy. in centuries and decades past folks had to move. for jobs and more serious reasons.

jhrodd

1 year ago

Reply to vanderlyn

Actually, in Centuries past people lived in the same house for generations. When I moved away from my neighborhood I was the first one in the 35 years I lived there. I only moved 45 miles away. I also sold my house to my neighbors daughter it didn’t go on the open market.

vanderlyn

1 year ago

Reply to jhrodd

sorry old sport, just not what actually happened in the aggregate. in amerikas volks moved much more in centuries past. in the old world perhaps folks stayed put. mine did in old country.

Lisa_Hooker

1 year ago

Reply to vanderlyn

Fleeing a jurisdiction comes to mind.

Directed Energy

1 year ago

Reply to jhrodd

Because successful people move to where the opportunities lay. I’ve moved 4 times in the last 12 years, taking advantage of what needs to be taken advantage of. Now, if something happens, I’m sort of stuck because it’s not appealing to trade a 2.8% mortgage for 6%.

I feel a rate of around 4.5% is fair, and in our future.

Someday, later this decade or next, the Gov is going to offer a direct loan of 2% if needed to save the housing market.

JackWebb

1 year ago

Reply to Directed Energy

If you’re not going to move, a 2.8% mortgage is just the ticket. Okay, was.

vanderlyn

1 year ago

Reply to Directed Energy

ha ha ha. guess the 70s was a mirage. folks who bought anywhere near last 3 years are gonna get shellacked on prices of junk houses over the next few years.. sometimes life forces moves. unemployed, hood turns bad. divorce. death, sickness or good reasons like family moves elsewhere………….

Jack

1 year ago

Reply to Directed Energy

Mortgage rates increased as high as 15% in early 1980s. People still moved.

KidHorn

1 year ago

Reply to Directed Energy

Might be a reason to stay now, but give it time. Once house prices drop, it will make the financial burden a lot less.

You’re much better off paying high interest on low principal than the converse.

JackWebb

1 year ago

Anyone here feel like talking about zero coupon bonds and when there’ll be an opportunity?

vanderlyn

1 year ago

Reply to JackWebb

zero coupon bonds were basically what banks have had offering zero interest for past decade plus on deposits. economist paper has a great take on it this week. i traded zeros for years. i’ll wait until this panic subsides. i’m guessing another year to 3. we are a long way from out of the woods. empire is bust. banks are bust. most amerikans are bust. inflation roared past 3 years. mish got it very wrong. stagflation is the best we can hope for. more like hyper stagflation to come. all empires die off in dustbins. all differently. the great book, “this time it’s different” is a classic. i might have to re read it. for the thrice time.

vanderlyn

1 year ago

FED does NOT give a hoot about inflation. only reason they exist is to keep the NYC central banks who own the fed, in high cotton. FFS go google institutional investor article on who owns the fed res ny. citi and jpm own majority of shares. the inflation and unemployment mandates are rubbish for nit wits, middle brows and other assorted distractions………FFS don’t listen to what they say. just follow the money.

JackWebb

1 year ago

We should have a poll here for the most outrageous lie out of Powell’s mouth today.

I nominate his calling SVB an “outlier.” Hmm, how about Silvergate, Republic, Signature, and PacWest, not to mention the busted Swiss watch? And isn’t it fun that neither he nor anyone in the intrepid media has mentioned the Federal Home Loan Bank, which funnelled money into (at least) SVB, Silvergate, and Pac West? What a charade. I guess if you’re going to be a cheesy, insulting liar, and if you’re going to be a blind propaganda squirrel in the financial media, you might as well go for the biggest lie you can tell.

worleyeoe

1 year ago

Reply to JackWebb

Like I said above, the FEd quants have known for 3 years that this day was coming, so everyone needs to stop acting like this is a surprise.

KidHorn

1 year ago

Reply to JackWebb

Just wait until commercial real estate blows up. It will be worse than than the GFC.

Call_Me

1 year ago

Reply to JackWebb

It worked for Psaki.

(and to a lesser degree for previous executive mouthpieces)

Call_Me_Al

JackWebb

1 year ago

TRANSLATION: “If you actually believe any of that 2% horses—, you’re even dumber than Janet Yellen. Fact is, we intend to use inflation to reduce the federal debt/GDP ratio. Everything else is whipped cream on dogs—. Have a nice day, sucka.”

vanderlyn

1 year ago

not a shot in hell will we get cuts. we might get more and more balance sheet expansion on fed as they bail out their owners, the bankers. that’s almost a given. but not a shot in hell rate cuts.

8dots

1 year ago

The dots might show the direction of the Dow, but not FFR. The woke will be bailed in, but the rest will wait for their 250K. The Fed don’t

control inflation, exogenous causes do. If the dots are correct the German rate will be zero.

MPO45v2

1 year ago

KB Homes reported today. Tidbits:

The Company’s ending backlog value was $3.31 billion, compared to $5.71 billion. Ending backlog units totaled 7,016,
compared to 11,886.

• Net orders of 2,142 and net order value of $1.00 billion decreased 49% and 53%, respectively, as the combination of higher
mortgage interest rates, elevated inflation and other macroeconomic and geopolitical concerns continued to temper demand.

◦ Gross orders for the quarter of 3,357, while down 29% from 4,729, increased 55% sequentially from 2,169. The
cancellation rate as a percentage of gross orders was 36%, compared to 11%. On a sequential basis, the cancellation
rate improved from 68%.

With Fed hiking and a couple of more quarters like this and we may get to the sweet spot.

Six000mileyear

1 year ago

Powell may cut rates late this year or early next year. But by the time he makes those cuts, bond markets will be driving rates higher.

Scooot

1 year ago

Election Year!

MPO45v2

1 year ago

The cheap money junkies want another hit, keep begging/hoping/planning/sacrificing for one more hit and JPow keeps standing firm saying no. Further, JPow says “credit tightening” and no more cheap money at least this year. At some point, the junkies will lash out just like junkies do and mayhem will ensue.

Of course I am biased, I have huge put positions on XHB and home builders, keep buying puts every time there has been a rally and the clock is ticking. January 2024 will make it or break it, 303 days to go.

Tony Bennett

1 year ago

Reply to MPO45v2

“mayhem will ensue.”

…

Keep an eye on debt ceiling resolution. Iirc, Yellen said Treasury has until June. Treasury currently doing extraordinary measures (running its checkbook to zero). When it gets resolved Yellen will need to restock Treasury’s cash position. Probably $500 billion or so in (high yield) t bills will flood the market looking for buyers. Money sitting in banks low yield (savings) accounts will take notice. Another bank run on deposits.

MPO45v2

1 year ago

Reply to Tony Bennett

Oh i am keeping an eye on the debt ceiling, I’ve been rolling large T-bills positions every 13 and 17 weeks but they all redeem in May and I need to find a new home for all that cash, it’s ironic it is happening during bank runs too. I got large chucks redeeming in April. I may just go YOLO and take all that money and buy XHB puts.

Tony Bennett

1 year ago

30 day treasury bill … +16 bps

10 year treasury note … -16 bps

Bond market knows what’s going down.

Tony Bennett

1 year ago

“GDP: Year-over-year GDP (December 2022 to December 2023) will be weak, 0.4 percent to 1.0 percent.”

…

Of course, they NEVER mention the “R” word … then they would have to Do Something (like what?) … better to look straight ahead and wait for something to Break … then pull out the broom and dustpan.

Not helping a lot of economic numbers are heavily revised at inflection points. In some cases, years later.

GFC recession started December 2007 … yet FOMC at the June 2008 RAISED GDP growth for year.

April 2008 … +0.3% to +1.2%

June 2008 … +1.0% to +1.6%

link to federalreserve.gov

Bam_Man

1 year ago

So they expect to go “Full Erdogan” next year – cutting rates while in a hyperinflation.

Nothing these clowns do surprises me anymore.

Tony Bennett

1 year ago

Reply to Bam_Man

Oh, they might be cutting rates … but it will be in the teeth of disinflation / deflation.

dtj

1 year ago

This is the final rate hike. They’ll be rolling out the propaganda machine soon to make everyone think inflation is over and no more rate hikes are necessary. I already see it in the data the Bureau of Lies and Statistics has been putting out over the last several months.

KidHorn

1 year ago

I hope rates go to 5% and stay there. Everything will adjust. Stop punishing savers.

If they can’t currently make cars and sell them to people paying say 8% interest, they’ll be forced to find a way. Banks will also find a way to survive. The smart companies survive and thrive. The dumb ones go under. The best way of doing things.

StukiMoi

1 year ago

Reply to KidHorn

“The smart companies survive and thrive. The dumb ones go under. The best way of doing things.”

But THE VERY EXACT THING, which The Fed was created to prevent.

Incompetents being liquidated, so that the more competent can take over wealth, meaning scarce means of production, and employ it less incompetently; requires NO Fed at all. It’s the natural way free markets will always work, if left to their own devices.

OTOH, it is forcing water to flow upstream: To instead arrange to have wealth flow FROM the competent, and TO the incompetent; which requires constant, and ever accelerating; intervention from both a Fed and an ever growing Government.

JackWebb

1 year ago

Reply to StukiMoi

The Fed was created prior to electronic transfers. One big function was to ensure that credit was available to farmers. Also, there was that pesky Panic of 1907, where J.P. Morgan lent to busted banks at usury rates. There’s a whole lot that I don’t know, and I refuse to fake it. I am wondering about Atlas SP Partners, which seems to be waist deep in the Swiss bank situation, and at PacWest Bank.

vanderlyn

1 year ago

Reply to JackWebb

creature from jekyll island. the boys in NYC worked for decades to jump. and panic of 1907 gave them the opportunity. i can’t say this enough, the FEDRESNY, where all the “printing and handing out to banks occurs” is a PRIVATE ENTITY. the fools don’t know this and/or ignore it. but fools. why we have tens of thousands less banks now than we did when FED was created.

StukiMoi

1 year ago

Reply to JackWebb

“One big function was to ensure that credit was available to farmers.”

Since prior to The Fed, corn didn’t grow……? Credit has always been available to farmers. At high rates; and with high risk faced by the lender. Credit is available to farmers even in states where banking is flat out illegal. OTOH, stealing money by debasement, in order to hand it to JP Morgan, does not fertilize cornfields.

“….Panic of 1907, where J.P. Morgan lent to busted banks at usury rates.” If the rates were unaffordably high, repayment would be unaffordable. Hence would not be made. Which is what did happen. Which is why ol’e JP figured it was better if some privileged organ of The State instead robbed people by debasement; in order to backstop his usury loans. The privileged looking out for each other, and all..

The Dot Plot Shows Fed Projects Interest Rate Cuts Next Year

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