Fed will overshoot rate increases

Welcome to the Precious Metals Bug Forums

Welcome to the PMBug forums - a watering hole for folks interested in gold, silver, precious metals, sound money, investing, market and economic news, central bank monetary policies, politics and more. You can visit the forum page to see the list of forum nodes (categories/rooms) for topics.

Why not register an account and join the discussions? When you register an account and log in, you may enjoy additional benefits including no Google ads, market data/charts, access to trade/barter with the community and much more. Registering an account is free - you have nothing to lose!

For anyone that missed watching JPow's press conference, Wolf has documented a lot of what was said:

Investors now expect the major central banks to raise rates much more than they were just at the start of this month. They are still underpricing the risk of how much more tightening is to come.

The Federal Reserve may raise interest rates as high as 6%, the European Central Bank to 4% and the Bank of England to possibly 5% should the global economy continue to be resilient and inflation run rife.

Here’s why...

FOMC minutes due later today. Meanwhile...

St. Louis Federal Reserve President James Bullard expressed confidence that the central bank can beat inflation and advocated Wednesday for stepping up the pace in the battle.

Bullard told CNBC that a more aggressive interest rate hike now would give the rate-setting Federal Open Market Committee a better chance to bring down inflation that, while falling some off the precarious levels of 2022, is still high.
Those comments come a week after Bullard and Cleveland Fed President Loretta Mester both said they were pushing for a half percentage point rate hike at the last meeting, rather than the quarter-point move the FOMC ultimately approved.

They said they would continue to favor a more aggressive move at the March meeting. ...

Fed Minutes released - no real new info.

A "few" members said they wanted a half-point, or 50 basis points, hike that would show even greater resolve to get inflation down.

Since the meeting, regional presidents James Bullard of St. Louis and Loretta Mester of Cleveland have said they were among the group that wanted the more aggressive move. The minutes, however did not elaborate on how many a "few" were nor which Federal Open Market Committee members wanted the half-point increase.

Fed Minutes released - no real new info.

A "few" members said they wanted a half-point, or 50 basis points, hike that would show even greater resolve to get inflation down.
They should just cut to the chase and raise by 100 next time.
...and then follow up with another 100 the time after that.

The bottom line is that the Fed cannot chance letting up too soon. They have to err on the side of over tightening.
...but that is only after a Decade of doing everything they could to fuel inflation. Now they hope to not choke on it. lol
They are trying to choke inflation without completely imploding the economy. I expect they will raise rates by 50 next time unless economic data gives them solid assurance that disinflation has taken root, but we aren't there yet.
The age of ZIRP is over for at least 20 years. Adapt and learn to live with inflation.
They are trying to choke inflation without completely imploding the economy. I
Fat chance of that when the FED bankers themselves are saying a deep recession will be needed.

Less than seven minutes and includes quotes from the FED.

Fed Now Expects Deep Recession Needed to Beat Inflation​

Yes, all indications are pointing to the realization that they need to apply the brakes harder and break the economy a bit. Don't worry though, they will make sure that banks survive the coming hardships.

Column: Fed flags lags and summertime blues​

LONDON, Feb 24 (Reuters) - If Fed steers on the time it takes interest rate hikes to hit the real economy are anything to go by, the state of the economy this summer will define the endgame.

The U.S. Federal Reserve clearly knows it's tightened credit a lot already - the past 12 months have seen the biggest official interest rate rise in more than 40 years. It's just far less certain when all that kicks in on demand - or at least slows things down enough to sink inflation back to target.


That's not a surprise. I expect the Fed is going to raise by 50 next time. Rhetoric to that effect will continue to trickle out.
They are trying to choke inflation without completely imploding the economy. I expect they will raise rates by 50 next time unless economic data gives them solid assurance that disinflation has taken root, but we aren't there yet.
The secret to stocks’ success so far in 2023? An unexpected $1 trillion liquidity boost by central banks. ( behind paywall - but you get the idea.)

Stock market good, inflation bad must stop

Edited to add text of the article.

Gains for global equities have left many on Wall Street perplexed as stocks — especially high-risk growth names with little or no profits — have rebounded from last year’s punishing selloff, resisting both the pull of more attractive bond yields, and the threat of higher interest rates.

But some Wall Street analysts say they’ve found an explanation that has little to do with inflation and the state of the global economy.

The upshot is this: The Federal Reserve, European Central Bank and Bank of England have advertised that they’re trying to drain the ocean of banking-system liquidity, but on a global scale, liquidity has actually increased in recent months. That’s due in part to factors that are outside the control of policy makers.

A trillion-dollar boost to asset prices​

In a research note shared with clients last month, Matt King, a global markets strategist at Citigroup Inc., detailed how the world’s largest central banks had recently injected $1 trillion into the global financial system.
The bulk of this increase, according to King’s analysis, came from the People’s Bank of China, which has bucked the trend of global monetary tightening and instead opted to directly inject liquidity into its banking system, accounting for most of the $1 trillion figure.
“Even as the central banks have told us they’re going to be tightening, it turns out that on at a global level, they’ve just added $1 trillion worth of liquidity over the past three months,” King said.
In his report, King said he was inspired to take a closer look at central-bank balance sheets after concluding that changes in the fundamentals — meaning the outlook for the economic growth and inflation — failed to explain moves across global markets, including a rebound in global equity prices.
When he finally mapped moves in global equities against the shifting tides of global central bank liquidity, he found that they were a near-perfect fit.
The chart below tracks the performance of the MSCI World Index 990100, -0.29% against the ebbs and flows of banking-system liquidity. The index has risen 12% since the end of September, according to FactSet data. Around the same time, global central bank liquidity stopped ebbing, and started expanding once more.


U.S. bank reserves flat-line​

But even the Federal Reserve has contributed to the liquidity deluge in a more passive way, according to King and another London-based strategist, Michael Howell, managing director of CrossBorder Capital, a macro advisory firm.


Understand how today’s business practices, market dynamics, tax policies and more impact you with real-time news and analysis from MarketWatch.
MarketWatch on Multiple devices

For more than a year now, the Federal Reserve has been trumpeting its plans to “tighten” liquidity in the U.S. financial system by raising interest rates and reducing its bond holdings by opting not to reinvest the proceeds from maturing bonds.
And while the size of the Fed’s bond holdings has shrunk since last spring by about $500 billion, according to data from the St. Louis Fed, another important component of its balance sheet, U.S. banking system reserves, appears to have flat-lined.
According to the latest weekly update released by the Fed, reserve balances at Federal Reserve banks stood at $3.01 trillion as of Feb 22. That’s a modest increase from $2.9 trillion at the end of September.
“The Fed is supposedly rolling off the balance sheet, but bank reserves are not falling,” Howell said.
This could also be helping to buttress equity prices as the amount of money available for U.S. banks to push into the financial system has expanded, instead of contracting, he said.

Stocks coming off the boil​

To be sure, U.S. stocks have come off the boil in recent weeks following a torrid rally that resulted in the Nasdaq Composite COMP, 0.73% rising more than 10% in January for its best start to a year in two decades, according to FactSet data.
That stocks are no longer climbing could be a sign that the liquidity tide is ebbing once again. Whether it will once again come to the market’s rescue remains to be seen.
But it’s certainly possible that ultimately, equity valuations could suffer as a result. According to Howell and his team, it’s possible the Fed may need to hike interest rates more aggressively to compensate for its unwillingness to further cull banking system reserves.
After resisting their pull for a few weeks, U.S. stocks appear to be feeling the effects of higher bond yields. The Nasdaq Composite, S&P 500 SPX, +0.76% and Dow Jones Industrial Average DJIA, +1.05% all lost ground in February. They were putting in a mixed performance on Thursday as the yield on the 10-year Treasury note topped 4%. Bond yields move inversely to prices.

Stock market good, inflation bad must stop.
Last edited:
Everything I'm hearing points to .50...........maybe more(?)
They were hinting at it for a while, but the markets didn't want to believe it. JPow today tried to cut through the irrational exuberance with some tough talk. A lot of the economic data points they watch are lagging factors, so the economy could slow down (and disinflation take root) between now and the point where the Fed makes their next rate decision, but unless the data tells a convincing story, it's looking like 50 bp is on the table for the next decision.
It seemed like only yesterday that markets were sure that a tougher Federal Reserve was going to raise its benchmark interest rate a half percentage point at its meeting in less than two weeks.

That's because it, in fact, was yesterday. On Thursday, traders in the futures market were almost certain the Fed would take a more hawkish monetary policy stance and double up on the quarter-point hike it approved last month.

But one bank implosion and a cooperative jobs report later, and the market has changed its mind.

Onto our call of the day from Goldman Sachs, where economists say the rescue of SVB and other depositors will tie the Fed’s hands next week.

“In light of recent stress in the banking system, we no longer expect the FOMC to deliver a rate hike at its March 22 meeting with considerable uncertainty about the path beyond March,” said a team led by chief economist Jan Hatzius in a note to clients late Sunday.


ZIRP forever.

Malinvestment on steroids. More leveraged stawk buybacks; more zombie companies.

More vulture-capital firms levering to buy out whole residential neighborhoods.
From the link:

  • Markets still expect the Fed to keep up its inflation-fighting efforts, despite high-profile bank failures that have rattled the financial system.
  • Traders on Monday assigned an 85% probability of a 0.25 percentage point interest rate increase when the Federal Open Market Committee meets March 21-22.
  • Goldman Sachs was virtually alone when it said it expects the central bank to pass up the chance to hike rates next week.
But the Fed also has to provide its forecast of the future path of interest rate hikes and these might be hard for the market to digest.

“The risk is…the associated ‘dot plot’ will be a little hawkish,” said Vince Reinhart, chief economist at Dreyfus and Mellon,

That’s because the Fed’s forecast will likely show a stark difference from the market’s views.

The Fed’s so called dot-plot will likely stick to its forecast endpoint of rates at 5.1%, which implies one more rate hike in May, but it could raise the endpoint to 5.375%.

In either case, the Fed is not expected to forecast any rate cuts this year.

The market is barely pricing in a May hike but then the differences set in. Market pricing implies a rate cut as soon as June, with rates falling to 4.25%-4.5% by year end.

Economists don’t think the market will be convinced.

.25 today.
That was the safe move. Had they went .5, it would have signaled that they were wrong in only doing .25 last time.

Had they done zero, it woulda signaled that they are getting cold feet in spite of the data.

Where they will have a problem, is if inflation keeps heating back up between now and their next pow wow.
Balance sheet exploded because of bank rescue efforts. It wasn't a planned or desired action. Of course, that doesn't mean that more unplanned and undesired balance sheet expansion is impossible (or improbable).
Look at the change from march 8 to the 15th up over a 140 billion.
Tomorrow some more balance sheet info comes out I just find it hilarious that the fed is pretend tightening at the present time.
Pretend and extend, isn't that the Fed's motto?
Top Bottom