![]() ![]() We forecast 3.1 and 2.0 for these two periods, respectively. The FOMC projects 4q/4q 2023 PCE inflation of 3.3 percent and 4q/4q 2024 of 2.5 percent. The FOMC also raised its expectations for inflation. We forecast -0.6 and 2.2 for these two periods, respectively. These are downgrades from the growth expectations that were released in December. The FOMC projects 4q/4q 2023 GDP growth of 0.4 percent and 4q/4q 2024 GDP growth of 1.2 percent. The Federal Reserve’s Summary of Economic Projections (SEP) anticipates slower real GDP growth over the forecast horizon (Figure 1). Finally, Chair Powell noted that the US banking system is “strong, sound, resilient, and well capitalized.” He also noted that the subsequent banking crisis resulted in tighter credit conditions that were actually doing the Fed’s monetary tightening work for it. On the banking crisis, Chair Powell said that an internal investigation is being launched to determine how the Fed missed the failure of Silicon Valley Bank and that he welcomed and expected outside probes. However, the SEP indicates that the Fed will hike just once more (25 bps) before holding rates steady for the remainder of 2023. Chair Powell said that that monetary policy decisions will continue to be made on a meeting-by-meeting basis. However, the decision to leave the program intact wont prevent the Fed’s balance sheet from continuing to swell due to the introduction of the emergency lending facilities to counter the banking crisis (more here). Additionally, the Fed elected not to change its program of reducing its holdings of Treasury securities, agency debt, and agency mortgage backed securities (aka Quantitative Tightening). The Fed made another 25 basis point rate hike in March and pushed the Fed Funds window to 4.75 – 5.00 percent. Chair Powell noted several times that the banking crisis may have done some of the Fed’s job for it and that financial conditions have tightened more than traditional indicators suggest.
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