Federal Reserve Meeting Minutes: Moderate Recession Expected Later This Year

•  trendspotteam

•  Apr 13 2023
   
•  145
 

For two days, the central bank's Free Market Committee, composed of 12 Federal Reserve members, privately decides on interest rate hikes. Once the decision is made, Fed Chairman Jerome Powell publicly announces it, as it has significant implications for the US economy and markets. While the announcement is crucial, investors may be more interested in the reasoning and consensus behind the decision. The committee's minutes, which are released approximately three weeks later, provide insight into the positions of all members.

During the last committee meeting, a decision was made to raise the interest rate by 0.25%, which received significant criticism. This increase occurred after the collapse of SVB, leading many to believe that further hikes would harm the economy. However, according to the recently published minutes from the meeting, all committee members supported the 0.25% increase, despite concerns and objections.

Fed Warns of Negative Banking Impact

According to Fed members, recent developments in the banking system were likely due to challenging credit conditions for households and businesses, leading to potential negative impacts on economic activity, employment, and inflation. The committee also noted that the exact effects of these events were uncertain but agreed that the US banking system remained resilient.

In contrast to the previous meeting, the term "recession" was mentioned only three times in the minutes, indicating a potential shift in tone. However, this does not necessarily reflect a positive outlook, as committee members still anticipate a moderate recession to commence later this year. Additionally, the committee predicts that the US economy's recovery from the recession will reach its apex within the next two years.

As per the minutes, the growth projection for the entirety of 2023 is 0.4%, with a first-quarter projection of 2.2%. This forecast falls short of the International Monetary Fund's recent estimate, which anticipates the US economy to expand by 1.6% and 1.1% in the upcoming two years, respectively.

Interest Rates: Committee Advises Patience and Caution

The committee members understand that the interest rate takes time to impact the economy, and it may be advisable to maintain the current rate in the next meetings. They also suggest considering the policy of monetary reduction and policy reduction, which can have a delayed effect on economic activity, inflation, and economic and financial developments when deciding on future increases.

The inflation figures for March have been released, with the index surpassing expectations by remaining at 5% over the past year, the lowest since June 2021, while the projection was 5.2%. The core index also met expectations at 5.6%, with an upward trend from 5.5% in February. However, comparing the core index to the regular index shows a significant gap, as the core index was at 3.8% in June 2021, indicating a considerable distance from price stability. This will undoubtedly impact the Fed's upcoming decision.

Following the release of the inflation data, the market predicted a 65% probability of the Fed increasing the interest rate by 0.25% at its next meeting. However, after the publication of the meeting minutes, the probability increased back to over 70%. As for the future rate hikes, it is expected that the interest rate will remain steady at the June decision (with a 65% probability), and drop to the range of 4.75% to 5% or below at the end of July meeting (with a 67% probability).

Please note that the article should not be considered as investment advice or marketing, and it does not take into account the personal data and requirements of any individual. It is not a substitute for the reader's own judgment, and it should not be considered as advice or recommendation for buying or selling any securities or financial products.

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