Upcoming Events
Mar 07 Powell Testifies before Senate Committee on Banking, Housing, and Urban Affairs
Mar 07 GDPNow Update
Mar 08 Powell Testifies before House Financial Services Committee
Mar 08 Beige Book Release
Mar 08 JOLTS Release
Mar 08 GDPNow Update
Mar 09 Financial Accounts of the United States Release
Mar 10 Jobs Report Release
Mar 11 FOMC Blackout Period Begins
Recent News
Heading to The Hill… The Federal Reserve Board of Governors has delivered its latest Monetary Policy Report and Chair Jerome Powell is preparing to testify before Congress, a twice-per-year requirement established by the Humphrey–Hawkins Full Employment Act of 1978. Much of the focus will likely be on the Fed’s ongoing efforts to bring down inflation, though Sen. Elizabeth Warren is expected to voice concerns about the Fed’s intention to reduce demand in labor markets and Sen. Lummis may ask Powell about the process for opening a master account.
Mature audiences only… Governor Christopher Waller’s speech to the Mid-Size Bank Coalition of America was canceled on Thursday after an attendee of the virtual event began displaying pornographic images. The Fed shared Waller’s prepared remarks.
“Last month we received a barrage of data that has challenged my view in January that the Federal Open Market Committee (FOMC) was making significant progress in moderating economic activity and reducing inflation,” Waller had planned to say.
Waller had also intended to express the FOMC’s resolve: “Whether or not subsequent data confirm the setback in progress last month, the FOMC will do what is needed to reduce inflation to the Committee's 2 percent objective over time. It is possible there may be some bumps on that path, but I assure you, the FOMC's dual mandate objectives will be achieved.”
Expecting more… Inflation expectations have risen over the last month. On Friday, bond markets were pricing in 2.71 percent inflation per year over the next five years, compared with 2.27 percent just one month ago. The ten-year breakeven inflation rate was 2.52, compared with 2.22 on February 3.
Going up… There seems to be little doubt that the Fed will raise its federal funds rate target this month. The question is: how high?
A few FOMC members indicated support for a 50 basis point hike at the previous meeting, though most thought a smaller move was more appropriate. Since then, the incoming data has been hotter than anticipated. Chair Powell is fond of saying that the FOMC is data dependent. Recent data would seem to make a bigger move more likely.
On Sunday, the CME Group put the odds of a 25 basis point hike at 75.3 percent, while the odds of a 50 basis point increase stood at 24.7 percent. A month ago, there was widespread agreement that the target range would be just 25 basis points higher in March (97.4 percent); a slim chance that it would remain unchanged (2.6 percent); and no chance that the Fed would raise its target rate more than 25 basis points (0.0 percent).
Growth forecast slows… The Atlanta Fed now estimates GDP will grow at an annualized rate of 2.3 percent in Q1-2023—down from 2.8 percent on February 27. GDPNow remains well above the Blue Chip consensus.
Money matters… The M2 money stock fell from $21.404 trillion in January to $21.149 trillion in February, an 1.19 percent decline. It peaked at $22.052 trillion in April 2022. The M2 money stock is still 36.9 percent larger than it was at the end of 2019, just prior to the pandemic.
Costly renovations… The Federal Reserve is experiencing significant cost overruns on its project to upgrade the offices in the Marriner S. Eccles and FRB-East buildings, Andrew Ackerman and Nick Timiraos (WSJ) report. The project, which was estimated at $1.9 billion in 2019, will now cost $2.5 billion. The declining value of the dollar accounts for nearly half of the difference.
The renovated campus, which also includes the recently-renewed William McChesney Martin Jr. building, will house the roughly 3,000 economists, lawyers and professionals who work at the Fed.
The right man for the job… Allegations of nepotism swirled following a report by Craig Torres (Bloomberg) that Chicago Fed president Austan Goolsbee’s wife is a managing director of Diversified Search Group, the search firm employed by the regional Reserve Bank that ultimately settled on her husband.
A regional Reserve Bank president is selected by the Bank’s Class B and C directors and confirmed by the Federal Reserve’s Board of Governors.
“We were made aware of her employment and she played no role in the search,” a Federal Reserve Board spokesperson told Bloomberg.
Torres had preciously reported that two Fed governors—Christopher Waller and Michelle Bowman—abstained from the vote on Goolsbee’s confirmation.