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Andrew Pyle

March 22, 2023

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Picture of wheel cogs with Federal Reserve written in front of table

Fed signals that inflation job isn't done yet

This afternoon, the Federal Reserve confirmed what many economists had predicted by raising their official overnight rate by a quarter of a percent to 5%. Given the disruptions to the US and global banking sectors over recent weeks, some had anticipated that the Fed would pause in order to gauge what impacts, if any, would there be on the real economy. At the end of the day, the Fed has a job to do and that is to return inflation back closer to its target of 2% and today’s decision (which was unanimous across voting FOMC members) illustrates that J. Powell and crew believe the job isn’t done yet.

 

Looking ahead, the Fed didn’t exactly commit to further rate hikes and removed the reference from the previous policy statement that “ongoing increases in the target range will be appropriate” and replaced it with “some additional policy firming may be appropriate”. The fact that there is no guidance of pausing links back to the fact that the Fed does not see a frail US economy and highlighted how job gains “have picked up in recent months” and that inflation “remains elevated”. Given the latter comments, it is curious as to how markets initially read this decision and statement as dovish.

 

In terms of banking developments, the FOMC stated that the U.S. banking system is sound and resilient, although any effects on hiring and inflation from tightening in conditions brought about by recent developments is uncertain. In the so-called “dot plot”, Fed officials are forecasting one more quarter-point rate hike by the end of the year. In other words, as much as some in the market believe that rate cuts are coming in the second half, the Fed doesn’t agree – at least for now. This suggests that economic activity is likely to be biased to the weak side in the second half and equities may not have fully priced that in. We still see bonds as the safer move, but current pricing is rich after the sharp drop in bond yields over the last couple of weeks.

 

On behalf of the Pyle Group, have a good evening.

Andrew Pyle

 

CIBC Private Wealth consists of services provided by CIBC and certain of its subsidiaries, including CIBC Wood Gundy, a division of CIBC World Markets Inc. “CIBC Private Wealth” is a registered trademark of CIBC, used under license. “Wood Gundy” is a registered trademark of CIBC World Markets Inc. This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change. CIBC and CIBC World Markets Inc., their affiliates, directors, officers and employees may buy, sell, or hold a position in securities of a company mentioned herein, its affiliates or subsidiaries, and may also perform financial advisory services, investment banking or other services for, or have lending or other credit relationships with the same. CIBC World Markets Inc. and its representatives will receive sales commissions and/or a spread between bid and ask prices if you purchase, sell or hold the securities referred to above. © CIBC World Markets Inc. 2022.CIBC Wood Gundy, a division of CIBC World Markets Inc.

 

These are the personal opinions of Andrew Pyle and the Pyle Group and may not necessarily reflect those of CIBC World Markets Inc.

 

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CIBC Private Wealth” consists of services provided by CIBC and certain of its subsidiaries through CIBC Private Banking; CIBC Private Investment Counsel, a division of CIBC Asset Management Inc. (“CAM”); CIBC Trust Corporation; and CIBC Wood Gundy, a division of CIBC World Markets Inc. (“WMI”). CIBC Private Banking provides solutions from CIBC Investor Services Inc. (“ISI”), CAM and credit products. CIBC Private Wealth services are available to qualified individuals. Insurance services are only available through CIBC Wood Gundy Financial Services Inc. In Quebec, insurance services are only available through CIBC Wood Gundy Financial Services (Quebec) Inc.


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