What will happen after the Fed meeting on Wednesday

What will happen after the Federal Reserve FOMC meeting on Wednesday? this is the question that keeps international markets in suspense. Fed chairman Jerome Powell and other executive committee members have hinted that they intend to raise the Fed Funds rate by 50 basis points and announce the start of the budget cut.

Goldman Sachs analysts believe that there is a high probability that the FOMC will continue to raise the cost of money in the US in increments of 50 basis points to reach a rate of 2.25-2.5%. The focus, they explain, will therefore not be so much on the retouch that will be announced on Wednesday, more or less taken for granted, but rather on the comments that will be offered by Powell at the end of the meeting.

Within the board the ‘hawks’ would like a quicker than expected squeeze. St. Louis Fed President James Bullard, for example, recently pointed to the possibility of a future tweak by 75 basis points. “We consider such an acceleration of the tightening unlikely, especially as several FOMC participants pointed out that they do not see a 75 basis point increase as appropriate,” Goldman Sachs experts wrote.

The minutes of the March FOMC meeting also opened the door to the sale of mortgage-backed securities (MBS) during the budget reduction process. The hypothesis of the experts is that the FOMC will not, given that its members have a strong preference for using the political rate as the primary tool for regulating monetary policy, and MBS holdings as a share of the Fed’s balance sheet will most likely never rise to an awkward level. The data released on Friday on the trend of inflation and consumption in the United States have rekindled the debate: prices increased by 0.9% in March based on the PCE inflation indicator, the one followed by the Fed.

On an annual basis, lindex rose 6.6% after rising 6.3% in February. The Core Pce component, net of volatile elements, increased by only 0.3% for the second month in a row, and on an annual basis it decreased for the first time in more than a year, passing from 5.3% to 5.2% %. US household incomes grew by 0.5% in March, over the + 0.4% forecast by analysts but slowing from + 0.7% in February.

In the same month, consumer spending increased by 1.4%, over the + 1.1% expected by the market and accelerating compared to + 0.6% in February. American consumers therefore appear less likely to break the piggy bank in times of economic uncertainty. But as consumer expectations are improving, inflation appears to be the heaviest drag on savings.

“Inflation continued to erode household purchasing power as real disposable income fell 0.4%,” writes Lydia Boussour, US chief financial economist at Oxford Economics. “Consequently, families drew on their savings to finance their expensesas personal savings fell to 6.2% in March – the lowest level since December 2013. “According to Rubeela Farooqi, chief economist at High Frequency Economics, the data has no impact on the Fed’s rate hike plans. next week and expect a rise of 50 basis points.

Ma it is also necessary to look at the growth of wages which are picking up speed: according to Ian Shepherdson, chief economist at Pantheon Macroeconomics, a second 50 basis point hike in June may be more likely; after which the pace of the tightening could easily be slowed by the collapse of the housing market, now in its early stages, and the upcoming rapid decline in inflation. The report by the Institute for Supply Management’s US SMEs scheduled for Monday will therefore play a role, which according to analysts will show an increase. Overall, manufacturing production continues to expand, but supply network dislocations and input shortages, which may intensify in the near term, are a downside risk for the sector.

By Editor

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