Originally Published: March 22, 2023, 2 pm ET
Updated: March 22, 2023 2:52 pm ET
The second Fed meeting is today, meaning the markets are embattled in a tug-o-war between bulls and bears. Whether you’re trading penny stocks, which we discuss frequently, or higher-priced company stocks, what is decided today by the Federal Reserve could set a tone for the remainder of the quarter. Inflation is a core concern for many who’ve hoped that the FOMC monetary policy decisions are helped make headway toward a soft landing. While there isn’t a chance (for now) of a no-landing scenario, investors remain skittish ahead of this next rate decision in the stock market today.
With muted CPI data from February and cooler PPI data from the same period, the assumptions have been for the Fed to either pause hiking rates or raise them by 25 basis points. The Committee decided to raise the target range for the federal funds rate to 4-1/2 to 4-3/4 percent, 25 basis points in the last meeting. They also reaffirmed the judgment that inflation at 2% is “most consistent over the longer run with the Federal Reserve’s statutory mandate.”
Furthermore, Federal Reserve Chairman Jerome Powell explained that ongoing increases would appropriately tackle inflation. He said there are plans to “significantly” reduce the Fed’s balance sheet size and focus strongly on the jobs market. Powell explained in the January/February FOMC meeting press conference that job gains remain “robust” and that the labor force participation rate changed “little” from a year ago.
In addition, Powell was also asked what data is “substantially more evidence” that policy decisions are working. He explained, “As evidence comes in, it will be reflected in policy over time. It is our job to restore price stability for the American public.”
March 2023 Fed Meeting Statement & Rate Hike Announcement
Heading into the Fed Meeting today and FOMC statement for the March Fed meeting, the market is leaning toward a 25 basis point hike. However, a look at the last round of Fed minutes from February shows that some members wouldn’t be upset with a 50 basis point raise:
“A few participants stated that they favored raising the target range for the federal funds rate by 50 basis points at this meeting or that they could have supported raising the target by that amount. The participants favoring a 50-basis point increase noted that a larger increase would more quickly bring the target range close to the levels they believed would achieve a sufficiently restrictive stance, taking into account their views of the risks to achieving price stability in a timely way.”
– Penny Stocks To Buy Under $5? 3 To Watch This Week
Right now, the wild card is the recent banking crisis that saw Credit Suisse (NYSE: CS) get purchased and left regional banks on the naughty list for big money. First Republic Bank (NYSE: FRC), specifically, was the one making headlines this week. Alecta, Sweden’s largest pension fund, was reported to have sold all its shares in the ailing U.S. lender at a loss of $728 million. Whether or not this continues promoting concerns from policymakers is something yet to be seen.
March 2023 Fed Meeting, FOMC Statement, & Interest Rate Hike Top 10 Takeaways
- 25 Basis Point rate hike: The Committee decided to raise the target range for the federal funds rate to 4-3/4 to 5 percent.
- Recent indicators point to modest growth in spending and production. Job gains have picked up in recent months and are running at a robust pace; the unemployment rate has remained low. Inflation remains elevated.
- The U.S. banking system is sound and resilient. Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation. The extent of these effects is uncertain. The Committee remains highly attentive to inflation risks.
- The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run
- The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.
- In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans.
- The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.
- In determining the extent of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.
- Allow modest deviations from stated amounts for reinvestments, if needed for operational reasons.
- Reinvest into agency mortgage-backed securities (MBS) the amount of principal payments from the Federal Reserve’s holdings of agency debt and agency MBS received in each calendar month that exceeds a cap of $35 billion per month
Fed Chair Jerome Powell’s FOMC Press Conference Highlights
- Consumer spending appears to have picked up this quarter
- Activity in the housing sector remains week, largely reflecting higher mortgage rates
- Committee participants expect subdued growth to continue
- The labor market remains extremely tight
- Wage growth easing
- Job vacancies high
- Inflation remains “well above” our goal of 2%
- Considered a Pause leading up to the meeting supported by a “very strong consensus”
- Ongoing rate hikes changed to “some additional hikes” and “policy firming” verbiage added to the statement
- Focused on macroeconomic outcomes, including financial stability and lending facilities
- Paying attention to the actual and expected effects from credit crunch for future hikes
- What happened to Silicon Valley Bank? SVB management failed badly and exposed the bank to significant liquidity risk and interest rate risk and didn’t hedge that risk. Supervisors saw the risks and intervened. We know SVB experienced a rapid bank run from a connected group, a condensed group of depositors. Fed is conducting a review to find out “what went wrong.”
- Powell said not to worry about other banks as SVB is “an outlier”
- Fed expects slow growth and supply/demand rebalance with inflation moving down. Participants do not see rate cuts this year.
