​The Fed’s Most Recent Rate Hike and Potential Future Rate Hikes
     The Federal Reserve raised interest rates again by 0.25% for a Federal funds rate of 5.00%, the highest since 2006 right before the great financial crisis. A main paragraph from Powell’s press conference speech succinctly summarizes the Fed’s current outlook, “Events in the banking system over the past two weeks are likely to result in tighter credit conditions for households and businesses, which would in turn affect economic outcomes. It is too soon to determine the extent of these effects and therefore too soon to tell how monetary policy should respond. As a result, we no longer state that we anticipate that ongoing rate increases will be appropriate to quell inflation; instead, we now anticipate that some additional policy firming may be appropriate. We will closely monitor incoming data and carefully assess the actual and expected effects of tighter credit conditions on economic activity, the labor market, and inflation, and our policy decisions will reflect that assessment.”
     Jerome Powell’s statement is pretty straightforward, given recent major bank closures the Fed is likely to hike rates less than previously stated due to the economic results of the failed banks. Exactly how much less they are going to raise rates is difficult to pin down. It will depend on the depth and duration of the financial stress and the resulting sustained impact on financial conditions. Lastly, the upcoming Fed policy will be even more data dependent for both macroeconomic data and measures of financial conditions.
     Mike Gapen and his analyst team at Bank of America have adjusted their Fed call. They are now predicting one more 0.25% hike in May and no longer a rate hike in June, however, they still don’t see the Fed beginning to cut rates until March 2024. This change to their call is due to the “tighter credit conditions” that Fed Chair Powell stated in his speech. Overall, they are expecting a Federal Funds rate of 5.25% to be reached in May. However, if stronger macroeconomic data comes in after May the Fed may be inclined to raise interest rates higher.
     Bank of America Analysts also predict jobless claims to decrease to 190,000 from the previous 192,000. This underscores the tightness of the labor market and how much work the Fed still has to do to cool labor demand. They’re also expecting new home sales to cool to 650,000 at a seasonally adjusted annual rate for February, from 670,000 previously. Median prices of new homes have hit lows of $428,000 as of January, which was down for the first time on a year-over-year basis, at -0.7%. Nevertheless, the housing market remains tight as mortgage rates are still in high territory and months of supply have fallen steadily since September. New home sales should rebalance over time as supply adjusts to demand and  mortgage rates cool down further.

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