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Fed finally moves against inflation with rate hike -Breaking

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© Reuters. On March 27, 2019, a man rode a bicycle in front the Federal Reserve Board Building on Constitution Avenue, Washington, U.S.A. REUTERS/Brendan McDermid

NEW YORK, (Reuters) – The Federal Reserve raised interest rates Wednesday by a quarter point. It projected that its policy rate would be between 1.75% to 2% in the year ahead of time in a new aggressive stance against inflation. This will drive borrowing costs down to unsustainable levels by 2023.

The U.S. central banking issued a policy statement that marked the conclusion of the full-blown battle against the coronavirus pandemic. It acknowledged the enormous uncertainty facing the economy from war in Ukraine, ongoing health crises, and said that “ongoing increases in the federal funds rate” would be “appropriate” to reduce the most inflation since 40 years.

STORY: STATEMENT:

MARKET REACTION:

STOCKS – The stock index saw moderate gains, and the last time it was up was 0.43%

BONDS – The yield on the 10-year bond rose to 2.261%. On the 2-year note, it rose to 1.9997%.

FOREX. After briefly rising, the index fell to 0.08 percent.

COMMENTS:

JASON PRIDE is the CHIEF INVESTMENT OFFICER PRIVATE WEALTH at GLENMEDE in PHILADELPHIA and PENNSYLVANIA

The Fed acted today to confirm what had been assumed was a preordained conclusion by increasing the federal funds rate 25%. The Fed is likely to continue its campaign of policy normalization, which seeks out higher-than-normal inflation.

“The press release introduced fresh language highlighting the uncertainty prompted by the conflict between Russia and Ukraine, noting that “the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity.” The war in Eastern Europe is unlikely to halt the Fed’s tightening plans, but it may prompt caution on the speed of rate hikes as the economic effects of the conflict become better understood.

JOSEPH LAVORGNA, AMERICAS CHIEF ECONOMIST, NATIXIS, NEW YORK

“The Fed is reacting to the market’s fear of inflation. They confirmed their expectations for seven increases this year.

“They’re going to try to be aggressive here in raising rates. I wish Jay Powell and company all the best of luck because they’re not going to get anywhere near as they think, unless they’re willing to throw a lot of people out of jobs, because that’s what’s going to happen.  We’re heading for a recession. It is predicted that there will be a recession.

“This is magical forecasting. I don’t think it holds up to historical scrutiny. If you have a declining economy, rates will rise well beyond the neutral level. They believe neutral is higher than they actually are. This is what I don’t think the Fed can do to inflict inflationary demand destruction.

PAUL ASHWORTH, CHIEF US ECONOMIST, CAPITAL ECONOMICS, TORONTO (via email)

“The Fed opened its tightening cycles today with a 25bp rise. However, the uncertainty created by the conflict in Ukraine and China’s efforts at containment of Omicron variant spread, officials seem to expect to increase rates by 25bp at six more policy meetings this year. That would make the fed funds target range reach between 1.75% & 2.00%. According to the statement, “continued increases in the target range are appropriate.” This would mean that the pace of tightening will slow down, as the median projection points to a 25bp rate increase at each meeting next year. That would bring the target range between 2.75% to 3.00% by the end of 2023. This would put the policy rate at a slightly higher level than the median estimate for the neutral rate (which was slightly lower to 2.4%). The Fed projections remain hawkish despite the recent rally in rates expectations.

HINESH PATEL PORTFOLIO MANGER, QUILTER INSESTORS, LONDON

“It is early days in the hiking program, but we finally have lift off at the Federal Reserve. Despite being behind the likes of the Bank of England this has been a very well telegraphed and managed rate rise, even with the threats of Omicron, China’s regulatory crackdown and now the knock on effects of the war in Ukraine.

“None of these threats, however, are resolved by monetary policy and with the inflation shock reverberating around the system the Fed needs to move back to normalcy, at least to build in some insurance for when easing will once again be required in the future.”

SCOTT LADNER CHIEF INVESTMENT OFFICER HORIZONINVESTMENTS, CHARLOTTE NORTH CAROLINA

“What is driving it down is really the aggressiveness of the Federal Reserve. The one key thing the Fed is forecasting is to push interest rates above neutral and every time interest rates go above neutral, the economy tips into recession sometime after that.”

“This looks like a Fed that is intending on causing recession in order to stamp out the inflation problem and that is as short sighted as calling inflation transitory a year ago.”

“What they’re reacting to isn’t the 25 basis point rate hike that was well telegraphed and fairly well expected, what they’re really reacting to is the new dot plot from the Fed showing that they anticipate also seven rate hikes this year.”

ROBERT PAVLIK, SENIOR PORTFOLIO MANAGER, DAKOTA WEALTH MANAGEMENT, FAIRFIELD, CONNECTICUT

“It was pretty much right in line with what the market expected.”

“What we were seeing heading into this is buy the rumor, and now we are seeing a little bit of sell the news.”

“It’s really going to be a focus on how many interest rate hikes are these Fed (officials) forecasting this year and how fast are they going to roll off the balance sheet.”

This story retraces Glenmede’s correct position to Philadelphia (Pennsylvania)

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