Yesterday was the big day for the Federal Reserve. As you most likely saw they raised the Federal Funds Rate .25%. This had become largely expected over the past two weeks after the Silicon Valley Bank failure.
Federal Reserve Commentary 03-23-2023
March 23, 2023|
The big changes to the statement, in my opinion, was a shift in wording from" ongoing increases" to "some addition firming" may be appropriate. Markets reacted favorably initially but then changed direction when The Treasury Secretary Janet Yellen testified, they were not looking at universal deposit insurance.
Most analysts have commented the Fed is pausing without saying they are pausing. The Fed Chairman during his press conference said they believe the bank crisis is essentially a tightening. He continued to say inflation is too high but also said it appears the housing sector which is about 1/3 of the overall CPI is softening and they are seeing decreases in rents and housing prices. This is an example of how the CPI is a lagging indicator. This has been happening for months but is just now beginning the affect the CPI. If this shows a bigger decrease in the CPI next month the Fed will be more comfortable not raising rates.
As I said markets initially reacted well to the news and then the Treasury Secretary spoke. The markets ended down over 500 points yesterday. They are attempting to recover as of this writing today. I believe the Fed is done raising rates and that is good news for markets. As the banking issues are settled, I think markets will be comfortable the government is not providing a "universal backstop". This, along with better inflation numbers, should allow the Fed to stop raising rates and maybe even lower rates this year.
As of now, I am cautiously optimistic.