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☆ Wall Street has adjusted its expectations for when the Fed starts cutting rates
▼ + stars: | 2024-02-01 | by ( Jeff Cox | ) www.cnbc.com time to read: +4 min

Traders have moved out the probability of a March easing from around 90% in recent weeks to a coin-flip in the days leading up to this week's Federal Open Market Committee meeting to about a 1-in-3 chance Thursday. That's not to say the market still doesn't think the committee will cut rates sharply this year, but any dialing back now probably won't come quite as soon as expected. For the most part, Wall Street commentary showed an expectation that the Fed will cut at least four times this year, likely beginning in either May or June. "As inflation falls, real rates become more restrictive, and we think gaining consensus to cut will be easier." Most of Wall Street expects the FOMC to skip November, as the meeting falls the same week as the U.S. presidential election.

Persons: Jerome Powell, That's, Matthew Luzzetti, FOMC, Morgan Stanley, Ellen Zentner, Goldman Sachs, Goldman, Powell, David Mericle, Michael Gapen, Marc Giannoni, — CNBC's Michael Bloom Organizations: Traders, Deutsche Bank, Dow Jones, Fed, Wall, U.S, Bank of America, Barclays

☆ A change to this one clause could be the most important part of the Fed meeting
▼ + stars: | 2024-01-30 | by ( Jeff Cox | ) www.cnbc.com time to read: +5 min

"We heard at the December meeting that no official expected to raise rates further as a baseline outcome. And we've heard that Fed officials are beginning the discussions around rate cuts," Matthew Luzzetti, Deutsche Bank's chief U.S. economist, said in an interview. Now, there's considerably more uncertainty as multiple statements from Fed officials point to a more cautious approach about declaring victory over inflation. The inflation rate judged by core personal consumption expenditures prices, a U.S. Department of Commerce measure that the Fed favors, indicates the real funds rate to be around 2.4%. Fed officials figure the long-run real rate to be closer to 0.5%.

Persons: Jerome Powell, Liu Jie, we've, Matthew Luzzetti, Luzzetti, He'll, Bill English Organizations: Federal, Washington , D.C, Xinhua News Agency, Getty, Federal Reserve, Deutsche Bank, Bank's, Fed, U.S . Department of Commerce, Yale School of Management Locations: Washington ,

The new projections and the Fed's latest policy statement will be released at 2 p.m. EDT (1800 GMT). Fed Chair Jerome Powell is scheduled to hold a press conference half an hour later. With inflation slowing, that would allow interest rates to decline also. The last set of projections envisioned that the Fed's policy rate would fall by a percentage point in 2024, and by 1.2 percentage points in 2025 to end that year in the 3.25%-3.50% range. It hasn't happened so far, with economic growth through the first half of the year above the 1.8% rate that Fed officials view as the economy's non-inflationary trend, and continuing that way through the third quarter.

Persons: Matthew Luzzetti, Jerome Powell, Powell, Joseph Davis, Davis, Howard Schneider, Paul Simao Organizations: Federal Reserve, Deutsche Bank, Reuters Graphics Reuters, Commerce, Vanguard, Thomson Locations: WASHINGTON

What they likely won't be changing: Keeping one more rate hike on the table. Given that rosier picture, Luzzetti - like most analysts polled by Reuters - says Fed policymakers probably won't lift the policy rate any further. Many other economists also expect Fed policymakers to signal fewer rate cuts next year. That's only a touch higher than the 3.2% rate the Fed had expected to see at the end of this year. Reuters GraphicsIf progress towards the Fed's 2% goal slows next year though, as many economists forecast, that may mean fewer interest rate cuts next year.

Persons: Sarah Silbiger, won't, Matthew Luzzetti, Luzzetti, Tim Duy, Duy, That's, Loretta Mester, Kathy Bostjancic, Ann Saphir, Dan Burns, Andrea Ricci Organizations: Eccles Federal Reserve, Washington , D.C, REUTERS, Federal Reserve, Deutsche Bank, Reuters, Reuters Graphics Reuters, U.S, Fed, Cleveland Fed, Thomson Locations: Washington ,, U.S, China

☆ Wall Street economists say rate hikes are over, even if the Fed won't admit it
▼ + stars: | 2023-07-27 | by ( Jeff Cox | ) www.cnbc.com time to read: +4 min

At least that's the opinion across much of Wall Street, where the money is rising on the likelihood that Wednesday's quarter-point rate hike was the last one before the Fed goes on pause, then ultimately starts cutting. "Powell said that the FOMC will be particularly focused on the inflation data, and we expect the next few [consumer price index] reports to be soft," Mericle wrote. The implied fed funds rate for the December contract is at 5.41%, just above the midpoint of the 5.25%-5% target range following Wednesday's hike. And to be sure, not everyone on the Street thinks the Fed is done this year. The latter mark references Giannoni's belief that the Fed is probably more likely to hike twice more than it is to stop.

Persons: they're, Goldman Sachs, David Mericle, Goldman, Jerome Powell, Powell, Mericle, Dow Jones, Matthew Luzzetti, Morgan Stanley, Ellen Zentner, Zentner, That's, he's, Marc Giannoni Organizations: Federal, Traders, CME Group, Gross, Commerce Department, Deutsche Bank, Fed, Bank of America, Citigroup, Barclays Locations: Wall

☆ The market isn't buying the Fed's tough talk on interest rates
▼ + stars: | 2023-06-15 | by ( Jeff Cox | ) www.cnbc.com time to read: +5 min

Try as the Federal Reserve did Wednesday to send the message that multiple interest rate hikes are ahead, the market wasn't buying it. Indeed, market pricing reflected a high level of skepticism that the Fed is going to do much more in terms of policy tightening. That came even though 12 of the 18 FOMC members said they envision rate hikes totaling 50 basis points, or 0.5 percentage point, by the end of 2023. "Fed Funds Futures aren't buying to [Wednesday's] FOMC SEP guidance of 2 more rate hikes this year," wrote Nicholas Colas, co-founder of DataTrek Research. Powell's news conference after the decision to skip a rate hike at this week's meeting went in multiple directions.

Persons: Quincy Krosby, Jerome, Powell, Nicholas Colas, Goldman Sachs, David Mericle, that's, Matthew Luzzetti, Christopher Waller, James Bullard Organizations: Federal Reserve, Fed, LPL, Dow Jones Industrial, DataTrek, Empire, Manufacturing Survey, Deutsche Bank, Louis Locations: St

The Fed's meeting will be followed with expected rate increases by the European Central Bank on Thursday and the Bank of England next week. But the U.S. central bank is furthest along in the process, and may signal that this week's rate increase is the last, at least for now. Inflation has been edging down, gradually, with the main price index the Fed watches still more than double the central bank's 2% target. The anticipated quarter-percentage-point increase on Wednesday will put the target federal funds rate at roughly the same spot, between 5% and 5.25%. With this rate increase, Fed officials will hit a level that will be about 1 percentage point above the rate they consider to have a neutral impact on economic activity.

☆ Markets next week have to contend with how aggressive the Fed drumbeat sounds
▼ + stars: | 2023-04-28 | by ( Scott Schnipper | ) www.cnbc.com time to read: +8 min

"Is Chairman Powell going to say, 'It is likely that we pause now and assess what the economy is going to do?' "The tone on that balance is going to be very critical to how the market is going to move next week." "What is [Powell] going to do? June Fed meeting The betting on Wall Street right now is that, after next week, the Fed will standpat at its next meeting six weeks later, on June 13-14. Beyond Apple, some 161 other companies in the S & P 500 index are scheduled to report latest-quarter results next week.

But overall bank credit has been stalled at about $17.5 trillion since January. The response - less lending, tighter credit standards and higher interest on loans - was already taking shape. Hard data on bank lending and credit will come into play, augmenting topline statistics like unemployment and inflation that the Fed is focused on. Reuters GraphicsSENTIMENT WEAKENINGThe survey of large and small banks asks high-level questions - Are lending standards tighter or looser? A Dallas Fed bank conditions survey, conducted in late March after the two bank failures, indicated lending standards in that Fed regional bank's district have kept tightening, with loan demand falling.

☆ Wall Street sees the Fed starting to signal toward a recession ahead
▼ + stars: | 2023-03-23 | by ( Jeff Cox | ) www.cnbc.com time to read: +4 min

The Wall Street consensus after the Federal Open Market Committee meeting concluded Wednesday was equally cautious. "We took the broad signals from this meeting as lifting perceptions of recession risks within the Fed," wrote Matthew Luzzetti, chief U.S. economist at Deutsche Bank. "Powell noted that recent events will certainly not reduce recession risks, even if how much they heighten those risks remains uncertain." The risk from rates Worries remain that more Fed rate hikes will exacerbate banking problems by creating more duration risk. "We expect the FOMC to hike another 25bp in May, bringing the funds rate target range to 5.00-5.25%," wrote Barclays chief U.S. economist Marc Giannoni.

☆ As Fed meeting looms, economists see central bank balance sheet in new light
▼ + stars: | 2023-03-22 | by ( Michael S. Derby | ) www.reuters.com time to read: +6 min

BIG NUMBERSFed numbers showed the speed of the shift to a new balance sheet reality. Fed holdings peaked at just shy of $9 trillion last summer. The details of Fed holdings matters greatly in terms of understanding Fed balance sheet dynamics, analysts say. Benson Durham, head of global policy at Piper Sandler, said the key is the composition and not the size of Fed holdings. One factor limiting economists’ interpretation of the balance sheet surge is the fluidity of the factors now driving it.

☆ Deutsche Bank just raised Wall Street's highest interest rate forecast, saying the Fed's inflation fight is stalling out. Here are 3 reasons why.
▼ + stars: | 2023-02-16 | by ( Marley Jay | ) www.businessinsider.com time to read: +5 min

Michael Luzzetti of Deutsche Bank now thinks US interest rates will peak at 5.6% later this year. Luzzetti had the highest rates forecast on Wall Street, and just raised his projection further. He says new data shows that the Fed's huge rate hikes haven't done much to tame inflation so far. The Fed raised interest rates rapidly in 2022, using unusually large rate hikes for much of the year before tapering off to more typical 25-basis point increases. (3) Hanging looseThe Fed is aiming to reduce economic activity by tightening financial conditions, and it's trying to do that with higher interest rates and by letting financial conditions get tighter.

Higher interest rates are coming, and they are likely to remain in place for a long time. The Fed last week raised rates by three-quarters of a percentage point, the third consecutive hike of that size. 'RESET' UNDERWAYTo some degree, in fact, the thrust of Fed policy is to force just such a reevaluation. According to one index maintained by the Chicago Fed, overall financial conditions remain below their historical average, or slightly on the "loose" side, a signal that Fed officials may still have, as many of them put it, "work to do." Rising interest rates paid on safe investments like short-term U.S. Treasuries help that effort by changing the prices of a broad array of other assets.

☆ 'Bring the pain': Major banks raise forecasts for rate hikes after Fed's stern actions
▼ + stars: | 2022-09-22 | by ( Jeff Cox | ) www.cnbc.com time to read: +6 min

Goldman Sachs The call : A 75 basis point move in November, 50 basis points in December and 25 basis points in February, for a peak of 4.5%-4.75%, up half a percentage point from the previous expectation. Citigroup The call : November to see 75 basis points, followed by 50 in December and 25 in February, adding a cumulative 25 basis points for a terminal rate of 4.5%-4.75%. Both calls were 25 basis points higher than previous. One more 25 basis point hike in February, followed by a 50 basis point cut "in the latter portion of the year." UBS The call : 75 basis points in November, another 50 in December, with three 25 basis point cuts later in 2023.

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