UBS Economics-US Economic Perspectives _FOMC itll depend on the data_ Pi...-107958745
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US Economic Perspectives
FOMC: it'll depend on the data
Chair Powell said the decisions on future rate cuts would depend on the data, and
whether the inflation data improves sufficiently to give them greater confidence
inflation is headed to 2 percent. We already assumed Chair Powell would say the federal
funds rate would need to remain at its current level for longer than previously assumed.
He said that. He said how long would depend on the data. He had already expressed his
disappointment on the higher than expected inflation in the first quarter. He did that
again today. With the outlook depending on renewed doubts about forecasts, the path
forward rests on as yet unknowable data realizations to come, opening up a range of
potential outcomes for the path of interest rates ahead.
For example, Chair Powell said that while the FOMC thinks the current setting of
monetary policy is sufficiently restrictive, whether that proves to be the case will depend
on the data, and thus the possibility of resuming rate hikes. Overall, the confidence over
the inflation outlook appears sufficiently shaken that the Chair avoided offering much
guidance other than needing to wait longer than previously assumed. Holding rates
steady, moving rates lower, or higher were all discussed and the path, the Chair said,
depends on how the data unfolds. He did not rule out rate cuts this year, but he did not
rule out anything else either.
"I think my expectation is that we will, over the course of this year, see inflation move
back down. That's my forecast. I think my confidence in that is lower than it was
because of the data that we've seen. " - Chair Powell, post FOMC meeting press
conference
!
The point in the press conference that the lack of confidence in the forecasts pushing
them back to a 'needing to see it to believe it' or 'feeling our way forward' path for the
FOMC was when the Chair failed to offer odds of a rate cut this year in this answer. "Our
confidence [that inflation was moving sustainably at 2%] didn't increase in the first
quarter. And, in fact, what really happened was we came to the view that it will take
longer to get that confidence. And I think there are — I think the economy has been very
hard for forecasters broadly to predict its path. But there are paths to not cutting. And
there are paths to cutting. It's really going to depend on the data." Essentially, we may
have a forecast, but we can not depend on that to provide you listeners with the odds
we cut this year, or not.
We expect that is why the Chair dropped this from his prepared remarks: "We believe
that our policy rate is likely at its peak for this tightening cycle and that, if the economy
evolves broadly as expected, it will likely be appropriate to begin dialing back policy
restraint at some point this year." The Chair did not rule out cutting rates this year. He
also said he thought the policy rate was likely at its peak. However clearly the FOMC
wanted to signal being on hold through the year was a more probable option than
before, and partly due to the uncertainty.
"I think it's unlikely that the next policy rate move will be a hike. I would say it's unlikely.
You know, our policy focus is really what I just mentioned, which is how long to keep
policy restrictive. You ask what would it take? You know, I think we'd need to see
persuasive evidence that our policy stance is not sufficiently restrictive to bring inflation
sustainably down to 2% over time. That's not what I think we're seeing, as I mentioned.
Something like that is what it would take. We look at the totality of the data to answer
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that question. That would include inflation, inflation expectations and all the other data,
too." - Chair Powell, post FOMC press conference
%()I
The biggest disappointment in recent inflation data, we believe for Chair Powell and
others, and the component playing the largest role in keeping inflation from 2 percent,
has been owner's equivalent rent (OER). Chair Powell was talking about the coming
slowing in OER back in November of 2022. Putting OER on a slower trajectory, and a
pattern more in line with forecasting models that suggest progress in the future, is one
important component of gaining the needed confidence. A slower economy and labor
market would help mitigate the risk a too strong economy is preventing them from
achieving their inflation goals too. And yes, slower monthly changes in core PCE
inflation would also signal the improvement on inflation is resuming...though if OER
slows, it's that much more likely the overall monthly changes in core prices are slowing
too.
%H
The Fed made two changes to QT, which will go into effect in June. First they cut the
Treasury runoff cap to $25 bn per month from $60 bn, in line with our expectations after
the earlier announcement. Second, if mortgage prepayments were to someday surge so
the MBS runoff was above the $35 bn cap, they would reinvest the excess in Treasuries
rather than MBS. While the practical impact is negligible, it is a signal that the Fed would
like to get back to an all-Treasury portfolio eventually. The changes were in line with our
expectations, though we thought the announcement was more likely next meeting than
today, but we noted in the preview we thought today was an option for an
announcement.
%
The statement was little changed, though the FOMC took the opportunity to express the
collective disappointment in the Q1 inflation data by adding the sentence to the first
paragraph that read, "In recent months, there has been a lack of further progress
toward the Committee's 2 percent inflation objective." That is not news, since that was
pretty apparent by the FOMC communications after the March CPI data, however, the
FOMC did feel the need to make the point exceedingly obvious. The other change
updated the tense of the following: "The Committee judges that the risks to achieving
its employment and inflation goals have moved toward better balance over the past
year." That may have balanced some of the hawkishness of the inflation point, but
overall just seems like a change due to elapsed time.
,% H 1 May 2024 ab 3
(J()!
Source: Federal Reserve Board, UBS
(J% K
2024 2025 2026 Longer run
Change in real GDP 2.1 2.0 2.0 1.8
December projection
1.4 1.8 1.9 1.8
Unemployment rate 4.0 4.1 4.0 4.1
December projection
4.1 4.1 4.1 4.1
PCE inflation 2.4 2.2 2.0 2.0
December projection
2.4 2.1 2.0 2.0
Core PCE inflation 2.6 2.2 2.0
December projection
2.4 2.2 2.0
Federal funds rate 4.625 3.875 3.125 2.563
December projection
4.625 3.625 2.875 2.500
Median
Source: Federal Reserve, UBS
(LJ*HJMI
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
FOMC participants' assessments of appropriate monetary policy, Percent
2024 2025 2026 Longer run
Source: Federal Reserve, UBS
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作者：九派
分类：外资研报
价格：免费
属性：7 页
大小：632.12KB
格式：PDF
时间：2024-05-16
