FOMC preview: Fed to slow pace of rate hikes to 25 basis points
REAL ECONOMY BLOG | January 27, 2023
Authored by RSM US LLP
The easing of inflationary pressures, a slower pace of consumer spending and hiring, and the moderation of wage increases are coalescing in such a fashion that the Federal Open Market Committee next week should be comfortable slowing its rate increases.
We anticipate that the FOMC will increase its policy rate by 25 basis points to a range between to 4.5% and 4.75%.
While we think it’s premature to engage in a strategic pause to restore price stability, that time will arrive soon.
Our base case remains that the Federal Reserve’s policy rate will peak between 5% and 5.25% and stay there until early next year. Given the Fed’s likely deceleration in its rate increases, we think the first opportunity to put in place such a pause will be after the April meeting. That implies a 25-basis-point increase in March and then in April.
It is now appropriate that Federal Reserve Chairman Jerome Powell use his news conference on Wednesday to set the predicate for such a pause.
The upcoming employment cost index report for the fourth quarter, which is the Fed’s preferred metric of wage growth, will most likely affect how far Powell will go in his forward guidance.
Should the employment cost index match the moderation in other wage data, that will be further justification for Powell to point to such a pause.
The policy statement will also likely be subject to one notable change. The outlook paragraph needs to be updated to reflect slower retail sales and the deceleration in inflation with a caveat that it remains above their 2% target.
There will be no update to the Fed’s Summary of Economic Projections at this meeting and we expect no dissents to the 25-basis-point hike at the meeting.
Contact us at one of our locations or fill out the form below and we'll contact you to discuss your specific situation.
This article was written by Joseph Brusuelas and originally appeared on 2023-01-27.
2022 RSM US LLP. All rights reserved.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.
Johnson & Sheldon, PLLC is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.
For more information on how Johnson & Sheldon, PLLC can assist you, please contact us: Amarillo | Pampa | Hereford