As we wrote last week, despite there being some significant surprises in the March SEP, we still felt comfortable with our call of seven 25-basis-point hikes this year. We adjusted our call only slightly, by adding a hike in 2023 (three instead of two). The median projected funds rate path was higher than we anticipated, but that was consistent with the revisions to the inflation and growth projections for this year, which were also greater than anticipated. The median macro projections for 2023 and 2024 were qualitatively in line with our expectations, so we didn’t feel we needed to fundamentally reconsider our understanding of the Fed’s reaction function.
Powell Speech on “Restoring Price Stability”
Since the meeting, policymakers have resumed discussing monetary policy, and their comments are especially important given these unusual economic circumstances. Most significant were comments from Powell today in a speech and Q&A. Today Powell reiterated that an announcement of the start of balance sheet runoff could come “as soon as our next meeting in May, though that is not a decision that we have made.” We think it will come in May, now that they’re openly talking about that possibility and nobody on the Committee seems inclined to push for a delay, which in any case would be very brief.
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