There is uncertainty regarding FOMC policy this month due to the banking issues. Just two weeks ago, the debate appeared to be between a 25bp hike and a 50 bp hike at the March meeting. On March 7th, Fed Chair Powell said: … the latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated. If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.
emphasis addedHowever, expectations are now that the FOMC will announce a 25bp rate increase in the federal funds rate at the FOMC meeting this week, and they might even pause.
Nick Timiraos reviews the Fed’s situation at the WSJ: Fed’s Rate Path In Question After Silicon Valley Bank Collapse
The unemployment rate was at 3.6% in February, just above the 50-year low. The FOMC has been criticized for projecting a significant employment recession this year, and they will probably revise down their projected unemployment rate for Q4 2023.
As of January 2023, PCE inflation was up 5.4% year-over-year from January 2022, and, in general, inflation has been close to expectations. However, after accounting for the unusual dynamics related to the pandemic, inflation is likely lower than expected. The FOMC will likely leave their inflation projections mostly unchanged.
PCE core inflation was up 4.7% in January year-over-year.
Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents, Core Inflation1 Projection Date202320242025Dec 20223.2 to 3.72.3 to 2.72.0 to 2.2