Remember last Friday, March 20, when traders and investors suddenly decided that the odds of an interest rate hike by the Federal Reserve at its October 28 meeting approached 33%. That led to a sell off that hit gold especially hard. Today? It’s never mind.
As expected, the Federal Reserve Open Market Committee left its benchmark short-term interest rate at 3.50% to 3.75%. But that doesn’t mean there wasn’t news from its Dot Plot projections for future GDP growth inflation, and interest rates.
No secret. The big financial event of the week is the Wednesday, March 18, meeting of the Federal Reserve’s Open Market Committee. But the big news out of that meeting will likely NOT be a decision on interest rates themselves. As of Friday, the CME FedWatch Tool was putting the odds of the Fed keeping benchmark short term rates at the current 3.50% to 3.75% range near 100% at 99.2%. Now granted that the FedWatch tool only tells us what the FedFunds futures market thinks the Fed will do, but it would be extraordinary if the Fed let the financial markets get this call so wrong. that would produce exactly the kind of market volatility that the Fed tries to prevent. Recent weeks would have seen Fed officials trying to talk the markets out of that belief. That talk has been notably absent. The news out of that meeting WILL BE the quarterly revisions to the Fed’s dot Plot projections of future interest rates, inflation, unemployment, and GDP growth.
The U.S. economy was in worse shape in the weeks before the United States and Israel launched strikes against Iran than earlier government estimates had suggested, according to two closely watched economic benchmarks released Friday. Growth was slower than initially reported. And inflation was higher. If you’re worried about stagflation, here’s your data.
U.S. District Judge James E. Boasberg blocked the Justice Department’s move to subpoena Federal Reserve records in its inquiry into central bank chief Jerome H. Powell and his testimony regarding the Fed’s renovations of its headquarters.
The Producer Price Index for final demand increased 0.5% in January, the Bureau of labor Statistics reported this morning. Prices for final demand services advanced 0.8%, and the index for final demand goods declined 0.3 percent. On an unadjusted basis, the index for final demand rose 2.9% for the 12 months ended in January. Prices paid to U.S. producers rose in January by more than forecast, fueled by services and pointing to lingering inflationary pressures.
The producer price index increased 0.5%, the most since September, after a revised 0.4% increase in December. An index that excludes food and energy advanced by the most since July.
The top five coffee-growing countries, responsible for 75% of the world’s supply, experienced on average 57 additional days of coffee-harming heat annually because of the climate crisis, according to the findings of Climate Central.
The release today of the minutes from the Federal Reserve’s January 18 meeting gave the financial market’s something to think about. And signs that officials signaled no rush to restart interest rate cuts after pausing reductions last month, according to minutes from January’s meeting, wan’t something investors and traders wanted to think about. Stocks trimmed gains. Bonds fell. Oil jumped. The S&P 500 pared most of advance that had earlier reached 1%. But the market still managed to repair some of the damage in software stocks as a result of fears that AI models would disrupt the marker for software as a service. An ETF tracking software firms rose 1%.
This week’s three questions and answers are about the neutral interest rate (and Fed interest rate policy), global economic volatility, and tariffs and productivity.
President Donald Trump said Thursday that he could announce his pick to lead the Federal Reserve “next week.” He repeated his demand that the central bank should lower interest rates more quickly, saying they should be as much as “3 points lower” than they were currently. The Fed’s benchmark short-term interest rate is currently 3.50% to 3.75%.
Today, the Federal Reserve left interest rates unchanged. The Federal Open Market Committee voted 10-2 to hold the benchmark federal funds short-term rate in a range of 3.5%-3.75%. Governors Christopher Waller and Stephen Miran dissented in favor of a quarter-point reduction.
In a post-meeting statement, Fed officials said “job gains have remained low, and the unemployment rate has shown some signs of stabilization.” Officials dropped language pointing to increased downside risks to employment that had appeared in the three previous statements.
The upgraded assessment of the labor market likely signals that the Fed will remain on hold at the March and April meetings. The CME FedWatch Tool put the odds of no change at the March 18 meeting at 86.5% and the odds of no change at the April 29 meeting at 74%.
It’s unlikely that the Federal Reserve will surprise financial markets when it meets on January 28. The CME FedWatch Tool on Friday showed the financial markets giving 97.2% odds that the central bank would hold its benchmark short term interest rate steady at 3.50% to 3.73%. It’s extremely unlikely that the Fed would have let the financial markets expecting rates to stay the same if the bank was planing a policy shift.
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