Please consider the FOMC Press Release from December 14.
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 remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.
Russia’s war against Ukraine is causing tremendous human and economic hardship. The war and related events are contributing to upward pressure on inflation and are weighing on global economic activity. 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 4-1/4 to 4-1/2 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 pace 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 the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that were issued in May. The Committee is strongly committed to returning inflation to its 2 percent objective.
Hawkish Dot Plot
The FOMC statement was expected.
The Dot Plot of interest rate projections from the FOMC Projections Materials was unexpected in light of a seemingly weak CPI report for November.
FOMC Projections
2023 Projections, Change From September 2022
- Real GDP 2023: 0.5%, down from 1.2%
- Unemployment Rate: 4.6%, up from 4.4%
- PCE Inflation: 3.1%, up from 2.8%
- PCE Core Inflation: 3.5%, up from 3.1%
The Fed is predicting higher inflation, higher unemployment, lower GDP, and more rate hikes than the September 2022 meeting.
No Recession?
The Fed never predicts recession. It skirts the issue through this statement: “Projections of change in real gross domestic product (GDP) and projections for both measures of inflation are percent changes from the fourth quarter of the previous year to the fourth quarter of the year indicated.“
By comparing the fourth quarter to the fourth quarter of the previous year, the Fed can ignore mild recessions in the first three quarters of the year.
At least one member did predict negative GDP for the year if we look at ranges.
FOMC Range of Projections
Range Key Points
- The projected GDP range for 2023 is -0.5 to 1.0 percent, down from -0.3 to 1.9 percent.
- The projected interest rate range for 2023 is 4.9 to 5.6%, up from 3.9 to 4.9 percent in September.
Across the board this is a decidedly weaker economic forecast and a much more hawkish interest rate forecast.
CPI Cools Significantly in November But Rent and Food Still Sharply Increasing
The report is very hawkish in light of what many thought was a taming CPI.
For CPI discussion, please see CPI Cools Significantly in November But Rent and Food Still Sharply Increasing
But also note The Price of Food Jumps Again in November, What’s in Your Basket?
This post originated at MishTalk.Com.
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Mish
The correct response to
stagflation is the 1966 Interest Rate Adjustment Act. “while the aggregate of
time and demand deposits continued to increase after July, the proportion of
time to demand deposits diminished. Whereas time deposits were 105 percent of demand
deposits in July, by the end of the year, the proportion had fallen to 98
percent. These were all desirable developments.”
M1 peaked @137.2 on 1/1/1966
and didn’t exceed that # until 9/1/1967. Deposit rates of banks decreased from
a high range of 5 1/2 to a low range of 4 % (albeit not enough). A .75%
interest rate differential was given to the nonbanks.
And during this period, the
unemployment rate and inflation rates fell. And real interest rates rose.
our monetary gold stocks – forcing the U.S. to go off the gold standard. It is
the maintenance of our far-flung military bases and personnel, and that is a
principle drain on the dollar.
Economists flunked accounting. The banks are not in competition with the nonbanks. The NBFIs are the DFI’s customers.
So, with the remuneration of IBDDs, there is an increase in the supply of loan funds, suppressing interest rates, the asset swap. This decreases the real rate of interest.
Contrary to the idiots: there is no “Penalty on Thrift”. The egregious policies are driven by the ABA. See Barron’s:
The ABA was behind the Depository Institutions Deregulation and Monetary Control Act (which destroyed the thrifts, caused the Savings and Loan Association crisis, or “the failure of 1,043 out of the 3,234 savings and loan associations in the United States from 1986 to 1995”; and created the U.S. July 1990 –Mar 1991 economic recession).
Most of the stuff China produces isn’t for survival. It’s for entertainment…emotions.The US version doesn’t end up in a landfill.