Page 15 - May-June 2018 GSE Report Flip Book

MONETARY POLICY MJAAYNU- AJRUYNE20210818
MONETARY POLICY
The Federal Reserve grows “relentlessly” more hawkish
“The economy is in great shape,” said Fed Chairman Jerome Powell at the June 13th press conference after the FOMC meeting. Inflation, as measured by the Fed’s preferred “core PCE” hit its 2% target and the central bank expects it to hit 2.1% by year-end. (Inflation, as measured by CPI, jumped to 2.8%.) “Job gains have been strong,” according to the FOMC statement. “[The] unemployment rate has declined [while] growth of household spending has picked up [and] business fixed investment has continued to grow strongly.”
In a unanimous vote, the FOMC raised its target for federal funds rate 25 basis points to a range between 1.75% and 2.0%. Moreover, two additional rate hikes are gradually “baked in” for 2018, based expectations of the 15 members of the FOMC, as reflected in the committee’s dot plot chart for 2018. Two more rate hikes this year would bring the top end of the fed funds target range to 2.5%. Moreover, rates are expected to rise three times in 2019 and once in 2020, increasing the fed funds rate to nearly 3.5%
Wall Street analyst Wolf Richer wrote:
...This rate-hike cycle is different. It has now been going on for two-and- a-half years, during which the Fed hiked rates by 1.75 percentage points. The last rate-hike cycle lasted only two years, but the Fed pushed up rates by 4.25 percentage points to 5.25% by July 2006. The fact that this rate- hike cycle is so gradual allows the economy and markets, asset prices, and yields to adjust gradually – that’s what Powell pointed out when he said this “patience has borne fruit.” And it allows the Fed to keep going relentlessly.
“The FOMC may be moving at a gradual pace but nonetheless is lapping the field,” wrote Regions’ analysts. “Central bank policies remain on divergent paths, with the FOMC far ahead of the field in terms of withdrawing monetary accommodation. This does not figure to change much, particularly with
rising uncertainty over the global growth outlook. As such, this divergence in central bank policies will likely remain a source of swings in exchange rates and interest rates over coming quarters.” (Economic Preview, Regions, 06/25/18; WolfStreet.com, Wolf Richter, 06/13/18)
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