As expected, the FOMC unanimously agreed to a 75 basis point hike to the federal funds rate at the September meeting.
- “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 3 to 3-1/4 percent and anticipates that ongoing increases in the target range will be appropriate“
Balance Sheet. Though some have called for a faster draw down, the FOMC announced they would continue reducing its balance sheet at the current pace.
- “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.”
Hard Landing. The press conference after the FOMC statement by Federal Reserve Chairman, Jerome Powell got a lot of attention for the hawkish tone he took towards inflation. After months of hopeful wishing for a soft landing, Powell seems to be taking a more pessimistic tone.
- “Inflation is running too hot. You don’t need to know much more than that. The chances of a soft landing are likely to diminish if policy needs to be more restrictive or for longer.” Powell continued, “We’re never going to say there are too many people working…I wish there was a painless way to do that. There isn’t”
Looking Ahead. The FOMC believes that the federal funds rate will reach 4.4% by the end of this year, rise to 4.6% in 2023, and then fall to 3.9% in 2024. They also believe inflation, as recorded by the PCE index, will end the year at 5.4%, fall to 2.8% by the end of 2023, and then fall to 2.3% by the end of 2024.
FYI: Powell also addressed a housing correction. I will write about that in more detail tomorrow because I think the correction will be much easier said than done based on current market conditions.