Is the Fed Whetting Its Appetite For A Half-Point Rate Hike?
“Investors in the coming week will parse minutes of the Federal Reserve’s March meeting to gauge central bankers’ appetite for a half percentage point increase in interest rates next month.
Wednesday’s minutes will provide key details of the likely path forward on shrinking the Fed’s balance sheet. Fed Chair Jerome Powell said the plan will be laid out pretty clearly, hinting that policy makers debated an approach and came down in its favor.
The last time they shrank the balance sheet, the Fed set caps allowing holdings to run off at $50 billion a month—$30 billion in Treasuries and $20 billion in mortgage backed securities, phased in over a year—but officials have said they expect to go faster this time around.
In March, the Federal Open Market Committee raised its benchmark interest rate by just a quarter point against a backdrop of Russia’s war in Ukraine and the fastest inflation in four decades. Since then, price pressures have only mounted, and labor market data has shown solid employment growth and an acceleration in wages.
The U.S. added close to half a million jobs in March and the unemployment rate fell more than expected, according to government data on Friday. Those figures followed separate data showing a 6.4% jump in the personal expenditures price index, which the Fed uses for its inflation target.
Fed Governor Lael Brainard will participate in a Minneapolis Fed-hosted virtual discussion on inflation on Tuesday. It’s her first speech in months as she awaits Senate confirmation for the post of Fed vice chair.
The U.S. economic data calendar is light, with reports due on March services activity and the trade deficit for February.
What Bloomberg Economics Says:
“The rapid absorption of unemployed into the job market could mean the Fed can hike rates steeply to combat inflation without raising unemployment, at least in the near-term.”
—Anna Wong, Yelena Shulyatyeva, Andrew Husby and Eliza Winger, economists
Elsewhere, the European Central Bank will release minutes of its last meeting, only a week before its next decision. Monetary officials from Poland to Peru may hike rates, and counterparts from India to Australia are expected to keep policy on hold.”