Odds At 100% (Certain) The U.S. Prime Rate Will Rise After The May 4, 2022 FOMC Monetary Policy Meeting
 |
| Prime Rate Prediction |
Prime Rate Forecast
As of right now, our odds are at 100% (certain) the Federal Open Market Committee (FOMC) will vote to raise the target range for the benchmark fed funds rate, from the current 0.25% - 0.50%, to either 0.50% - 0.75%, or 0.75% - 1.00%, at the May 4TH, 2022 monetary policy meeting, with the U.S. Prime Rate (a.k.a Fed Prime Rate) rising to either 3.75% or 4.00%.
=======
Here's most of the text (note text in bold) from yesterday's speech by Fed Boss Jay Powell at the National Association for Business Economics (NABE) Conference:
"...Let me first pause to recognize the many millions who are suffering the traffic consequences of the invasion of Ukraine today. At the federal reserve our monetary policy is by the dual mandate to provide maximum employment and stable prices. That standpoint the current picture is plain to see for the labor market is very strong, and inflation is much too high. My colleagues and I are acutely aware inflation poses significant hardship especially on those least able to meet the cost there is an obvious need to move expeditiously to return the stance of monetary policy to a more neutral level into a more restrictive level if that is what is required for price stability.
We are committed to restoring price stability while preserving a strong labor market. At our meeting that concluded last week we took several steps in pursuit of these goals. We raised our policy interest rate for the first time since the start of the pandemic. We anticipate ongoing rate increases will be appropriate to reach our objectives. We also expect that a common meeting. In the press conference after the meeting I noted action could come as soon as our next meeting and may but it is not a decision we have made. These actions along with the adjustments we have made since last fall represent a substantial policy with the intention of restoring price stability.
In my comment today I will first discuss the economic conditions that warrant these actions and then address the path ahead for monetary policy. To begin with employment, and the last few years of historically long expansion that ended with the arrival of the pandemic you see the remarkable benefits of an extended period of a strong labor market conditions. We seek to foster a another long expansion in order to realize those benefits again. Labor market has substantial momentum and powered through the difficult omicron wave.
Adding 1.75 Million jobs over the past three months. The unemployment rate has fallen to 3.8%, Near historical lows. It has reached this level up much than anticipated by most forecasters. While disparities in employment remain, job growth has been widespread across racial, ethnic and demographic roots. By many measures the labor market is extremely tight. Significantly tighter than the very strong job market just before the pandemic for their far more job openings going unfilled today the before the pandemic.
Despite the unemployment rate being higher. Indeed there are record 1.7 Posted job openings for each person looking for work. Record numbers of people are quitting jobs each month, typically to take another job at higher pay. Nominal wages are rising at the fastest pace in decades. With the gains are strongest for those at the lower end of the wage distribution and nonsupervisory workers. It is worth considering why the labor market is so tight given the unemployment rate is actually higher than it was before the pandemic.
One explanation is a natural rate of unemployment may be temporarily elevated so that wage pressure is greater when the level of unemployment. The delta and omicron variances complicate hiring, and the strong position of households may have allowed some to be more selective in their job search. They might expect the factors to fade, reducing the pressure in the job market.
A second source of a labor market is that the labor participation rate below its pre-pandemic trend. Little demand measured by total employment plus posted job openings, has substantially recovered and far exceeds the size of the workforce. About half of the shortfall in labor force is attributable to during the pandemic history suggests most of the retirees are unlikely to reenter the workforce sprayed some non-participation is due to factors that may fade with time such as caregiving needs and fear of contracting COVID-19. With prime age participation well below its level there's room for further progress a more complete rebound however is likely to take some time. Increases in labor force participation also substantially lag declines in employment.
Overall, labor market is strong but showing a clear imbalance of supply and demand. With labor supply in the near term with a long expansion the factors holding back supply will likely ease. In the meantime we aim to use our tools to moderate demand growth thereby facilitating continued sustainable increase of employment and wages. Turning to price stability inflation outlook had deteriorated significantly even before Russia's invasion.
A rise in inflation has been much greater and more persistent than forecasters generally expected. For example at the time of her june 2021 meeting every participant at all but 135 submissions predicted 2021 headlight PCE inflation on it cute for basis would be below 4%. Inflation came in at 5.5%. For a time, moderate inflation forecast look plausible, the one-month headline of core inflation rates declined steadily from April through September. But inflation moved up sharply in the fall just since our December meeting the gear jump from 2.6% To 4.3%. Why have the forecast been so far off? A combination of a surge in goods demand and sharply rising goods prices. Most notable example here is motor vehicles. Prices soared across the vehicle sector; demand was met by a sharp decline in global production during the summer of 2021. Shortages of computer chips production remains below pre-pandemic levels and an expected sharp decline in prices has been repeatedly postponed. Many forecasters including participants have been expecting inflation to cool in the second half of last year. The economy started going back to normal after vaccines became widely available. Expectations for the supply side damage would continue to heal preschools would reopen allowing parents to go back to work and labor supply would begin bouncing back. Kinks and supply chain would begin resolving a consumption of a start rotating to services all of which would help reduce price pressures.
While schools are open none of the other expectations COVID-19 has not gone away with the arrival of vaccines. In fact were now headed once again into more covid related supply disruptions, this time from china. It continues to seem likely the hope for supply side healing will come over time as the world settles into some new normal. But the timing and scope of that relief are highly uncertain. In the meantime, as a wheat set policy we will be looking to actual progress on these issues and not assuming significant near-term supply relief. As the magnitude and persistence of the increase in inflation became increasingly clear of the second half of last year, and as the seller rated beyond expectations, the f once he pivoted to progressively less accommodative monetary policy in june the participant projected funds rate will be effective lower it to the end of 2022. And as the news came in the projected policy paths shifted higher.
We are committed to restoring price stability while preserving a strong labor market. At our meeting that concluded last week we took several steps in pursuit of these goals. We raised our policy interest rate for the first time since the start of the pandemic. We anticipate ongoing rate increases will be appropriate to reach our objectives. We also expect that a common meeting. In the press conference after the meeting I noted action could come as soon as our next meeting and may but it is not a decision we have made. These actions along with the adjustments we have made since last fall represent a substantial policy with the intention of restoring price stability.
In my comment today I will first discuss the economic conditions that warrant these actions and then address the path ahead for monetary policy. To begin with employment, and the last few years of historically long expansion that ended with the arrival of the pandemic you see the remarkable benefits of an extended period of a strong labor market conditions. We seek to foster a another long expansion in order to realize those benefits again. Labor market has substantial momentum and powered through the difficult omicron wave.
Adding 1.75 Million jobs over the past three months. The unemployment rate has fallen to 3.8%, Near historical lows. It has reached this level up much than anticipated by most forecasters. While disparities in employment remain, job growth has been widespread across racial, ethnic and demographic roots. By many measures the labor market is extremely tight. Significantly tighter than the very strong job market just before the pandemic for their far more job openings going unfilled today the before the pandemic.
Despite the unemployment rate being higher. Indeed there are record 1.7 Posted job openings for each person looking for work. Record numbers of people are quitting jobs each month, typically to take another job at higher pay. Nominal wages are rising at the fastest pace in decades. With the gains are strongest for those at the lower end of the wage distribution and nonsupervisory workers. It is worth considering why the labor market is so tight given the unemployment rate is actually higher than it was before the pandemic.
One explanation is a natural rate of unemployment may be temporarily elevated so that wage pressure is greater when the level of unemployment. The delta and omicron variances complicate hiring, and the strong position of households may have allowed some to be more selective in their job search. They might expect the factors to fade, reducing the pressure in the job market.
A second source of a labor market is that the labor participation rate below its pre-pandemic trend. Little demand measured by total employment plus posted job openings, has substantially recovered and far exceeds the size of the workforce. About half of the shortfall in labor force is attributable to during the pandemic history suggests most of the retirees are unlikely to reenter the workforce sprayed some non-participation is due to factors that may fade with time such as caregiving needs and fear of contracting COVID-19. With prime age participation well below its level there's room for further progress a more complete rebound however is likely to take some time. Increases in labor force participation also substantially lag declines in employment.
Overall, labor market is strong but showing a clear imbalance of supply and demand. With labor supply in the near term with a long expansion the factors holding back supply will likely ease. In the meantime we aim to use our tools to moderate demand growth thereby facilitating continued sustainable increase of employment and wages. Turning to price stability inflation outlook had deteriorated significantly even before Russia's invasion.
A rise in inflation has been much greater and more persistent than forecasters generally expected. For example at the time of her june 2021 meeting every participant at all but 135 submissions predicted 2021 headlight PCE inflation on it cute for basis would be below 4%. Inflation came in at 5.5%. For a time, moderate inflation forecast look plausible, the one-month headline of core inflation rates declined steadily from April through September. But inflation moved up sharply in the fall just since our December meeting the gear jump from 2.6% To 4.3%. Why have the forecast been so far off? A combination of a surge in goods demand and sharply rising goods prices. Most notable example here is motor vehicles. Prices soared across the vehicle sector; demand was met by a sharp decline in global production during the summer of 2021. Shortages of computer chips production remains below pre-pandemic levels and an expected sharp decline in prices has been repeatedly postponed. Many forecasters including participants have been expecting inflation to cool in the second half of last year. The economy started going back to normal after vaccines became widely available. Expectations for the supply side damage would continue to heal preschools would reopen allowing parents to go back to work and labor supply would begin bouncing back. Kinks and supply chain would begin resolving a consumption of a start rotating to services all of which would help reduce price pressures.
While schools are open none of the other expectations COVID-19 has not gone away with the arrival of vaccines. In fact were now headed once again into more covid related supply disruptions, this time from china. It continues to seem likely the hope for supply side healing will come over time as the world settles into some new normal. But the timing and scope of that relief are highly uncertain. In the meantime, as a wheat set policy we will be looking to actual progress on these issues and not assuming significant near-term supply relief. As the magnitude and persistence of the increase in inflation became increasingly clear of the second half of last year, and as the seller rated beyond expectations, the f once he pivoted to progressively less accommodative monetary policy in june the participant projected funds rate will be effective lower it to the end of 2022. And as the news came in the projected policy paths shifted higher.
The median projection that accompanied last week's 25 business point rate increase, shows the fellow funds rate at 1.9% At the end of this year. When rising above its estimated longer run normal value in 2023. The last statement also indicates the committee expects to begin reducing the size of our balance sheet in the coming meeting. I believe that these policy actions and those to come will help bring inflation down near 2% over the next three years. As always, our policy projections are not a committee decision or fixed plan. Instead they are a summary of what participants see as the most likely case going forward. The events of the past four weeks remind us that in tumultuous times, what seems the most likely scenario may change quite quickly, and can become outdated quickly at times like these when events are developing rapidly. Thus, my main message today is as the outlook evolves we will adjust policy as needed.
In addition to the direct effects from the oil and commodity prices, the evasion and related events are likely to restrain economic activity abroad and further disrupt the supply chains which would create a spillover stimulus economy. We might look at a historical experience with oil price shocks in the 1970s.Fortunately the united states is much better situated to oil the shocks and we are the largest producer of oil and the economy is significantly less intensive than the 1970s.Today the rise in oil prices has mixed affects on the economy, lowering the household income and raising investment and drilling overtime and benefiting oil-producing areas in general. On the net, oil shocks tend to weigh on it by far less in the 1970s. Second question, how likely is it the monetary policy can lower inflation without causing a recession? Our goal is to restore the price stability while fostering another expansion and sustaining a strong labor market. In the fomc projections I just described, the economy achieves a soft landing with inflation coming down and unemployment holding steady. Growth slows and the faster growth from the early stages of the reopening affects the fiscal support in the monetary policy is removed. Some argue that it stacks against the soft landing and pointed topoint to the 1994 episode as the only successful soft landing in the postwar period. I believe the historical record provides some grounds for optimism. Soft or at least soft dish have been common in the history.
In three episodes, 1965, 1984 and 1984, the fed raised [short-term rates] significantly in response to the perceived overheating without precipitating the recession. In other cases, the recessions chronologically followed the conclusion of the tightened cycle but the recessions were not apparently due to excessive tightening of the monetary policy. I think a recent example that hardening from 2015 to 2019 was followed by the pandemic. Now I hasten to add that no one expects bringing it about will be straightforward in the current context. Very little is straightforward in the context and monetary policy is often said to be a blunt instrument not capable of surgical precision. My colleagues and I will do our best to succeed in this challenging task and it is worth noting that today the economy is very strong and well positioned to handle the tight monetary policy. Third and finally, what will it take to restore price stability? The ultimate responsibly for the price stability rests with the federal reserve. Price stability is essential if we are going to have another sustaining period of the labor market conditions. I believe that the policy approach that I've laid out is well-suited to achieving this outcome.
We will take the necessary steps to ensure a return to stability and in particular, if we conclude and it's appropriate to move more aggressively by raising the federal fund rate by more than 25 basis points, we will do so.
And if we determine we need to tighten beyond common measures of neutral to a more restrictive stance, we will do that as well. Our monetary policy framework emphasizes that having longer-term inflation expectations angered at the longer-term objective of 2% helps us achieve both of our dual mandate objectives. While we cannot measure longer-term expectations directly, we monitor a variety of the market-based indicators.
The added pressure from the invasion of Ukraine on inflation from energy and other commodities comes at a time of already too high inflation. In normal times, when unemployment and inflation are close to these objectives, the monetary policy would look through a brief version associated with of the commodity price shocks. However, the risk is rising that an extended period of inflation could push longer-term expectations uncomfortably higher, which underscores the need for the committee to move expeditiously as I have described. To conclude, the past two years have been extraordinarily challenging.
Two years ago more than 20 million people were losing their jobs. Millions were falling ill and lives were being disrupted and destroyed. We have made enormous strides since then. Today as I've discussed the labor market is very strong but to end where I began, inflation is much too high. We have the necessary tools and we will use them to restore price stability..."
In addition to the direct effects from the oil and commodity prices, the evasion and related events are likely to restrain economic activity abroad and further disrupt the supply chains which would create a spillover stimulus economy. We might look at a historical experience with oil price shocks in the 1970s.Fortunately the united states is much better situated to oil the shocks and we are the largest producer of oil and the economy is significantly less intensive than the 1970s.Today the rise in oil prices has mixed affects on the economy, lowering the household income and raising investment and drilling overtime and benefiting oil-producing areas in general. On the net, oil shocks tend to weigh on it by far less in the 1970s. Second question, how likely is it the monetary policy can lower inflation without causing a recession? Our goal is to restore the price stability while fostering another expansion and sustaining a strong labor market. In the fomc projections I just described, the economy achieves a soft landing with inflation coming down and unemployment holding steady. Growth slows and the faster growth from the early stages of the reopening affects the fiscal support in the monetary policy is removed. Some argue that it stacks against the soft landing and pointed topoint to the 1994 episode as the only successful soft landing in the postwar period. I believe the historical record provides some grounds for optimism. Soft or at least soft dish have been common in the history.
In three episodes, 1965, 1984 and 1984, the fed raised [short-term rates] significantly in response to the perceived overheating without precipitating the recession. In other cases, the recessions chronologically followed the conclusion of the tightened cycle but the recessions were not apparently due to excessive tightening of the monetary policy. I think a recent example that hardening from 2015 to 2019 was followed by the pandemic. Now I hasten to add that no one expects bringing it about will be straightforward in the current context. Very little is straightforward in the context and monetary policy is often said to be a blunt instrument not capable of surgical precision. My colleagues and I will do our best to succeed in this challenging task and it is worth noting that today the economy is very strong and well positioned to handle the tight monetary policy. Third and finally, what will it take to restore price stability? The ultimate responsibly for the price stability rests with the federal reserve. Price stability is essential if we are going to have another sustaining period of the labor market conditions. I believe that the policy approach that I've laid out is well-suited to achieving this outcome.
We will take the necessary steps to ensure a return to stability and in particular, if we conclude and it's appropriate to move more aggressively by raising the federal fund rate by more than 25 basis points, we will do so.
And if we determine we need to tighten beyond common measures of neutral to a more restrictive stance, we will do that as well. Our monetary policy framework emphasizes that having longer-term inflation expectations angered at the longer-term objective of 2% helps us achieve both of our dual mandate objectives. While we cannot measure longer-term expectations directly, we monitor a variety of the market-based indicators.
The added pressure from the invasion of Ukraine on inflation from energy and other commodities comes at a time of already too high inflation. In normal times, when unemployment and inflation are close to these objectives, the monetary policy would look through a brief version associated with of the commodity price shocks. However, the risk is rising that an extended period of inflation could push longer-term expectations uncomfortably higher, which underscores the need for the committee to move expeditiously as I have described. To conclude, the past two years have been extraordinarily challenging.
Two years ago more than 20 million people were losing their jobs. Millions were falling ill and lives were being disrupted and destroyed. We have made enormous strides since then. Today as I've discussed the labor market is very strong but to end where I began, inflation is much too high. We have the necessary tools and we will use them to restore price stability..."
Click the following link to watch the video:
>>>> https://bit.ly/NABE-Fed <<<<
>>>> https://bit.ly/NABE-Fed <<<<
=======
In pandemic news: as of right now, there are 81,476,269 total cases of COVID-19, and a total of 999,792 deaths in the United States. The death count could easily pass the 1,000,000 mark this month. Stay tuned...
=======
Coronavirus COVID-19 Reminder:
Symptoms of COVID-19, which may appear 2-14 days after exposure, include:
- Fever
- Cough
- Shortness of breath
- Difficulty breathing or shortness of breath
- Persistent pain or pressure in the chest
- New confusion or inability to arouse
- Bluish lips or face
=======
=======
NB: U.S. Prime Rate = (The Fed Funds Target Rate + 3)
=======
=======
Stay tuned for the latest odds, and for current U.S. economic data (inflation, jobs, economic growth, wages, etc.)
=======
Current Odds
- Current odds the United States Prime Rate will rise to either 3.75% or 4.00% after the May 4TH, 2022 FOMC monetary policy meeting: 100% (certain.)
- NB: United States Prime Rate = (The Fed Funds Target Rate + 3)
=========
Labels: banking, banks, Coronavirus, COVID-19, COVID19, fed_funds_target_rate, Fed_Prime_Rate, fomc, inflation, money, odds, Pandemic, prime_rate, prime_rate_forecast, prime_rate_prediction, Social_Distancing, The_Fed
|
--> www.FedPrimeRate.com Privacy Policy <--
> SITEMAP < |
posted by Steve Brown | 3/23/2022 02:43:00 AM
0 Comments:
Post a Comment
<< Home