The Week in Preview

Upcoming Fed Announcement on Wednesday 5/3 is much anticipated.

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How’s The Market?”

Inflation and the Fed are dominating the current interest rate environment.

???????????????????????????????????Inflation remains stubbornly high, and while the economy of showing some signs of slowing it has not deterred the Fed from raising rates and holding them at these levels for an extended period of time.

As a result, rates have not been able to fall significantly and are in the middle of the range for the past 3 months.

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Economic Calendar:?Next Week.

The Fed: The Federal Open Market Committee (FOMC) announcement on Wednesday 5/3 at 11am PT is a key event.?

My forecast continues to side with another .250% increase in the Fed Funds rate, then on hold for most likely the rest of the year.

This “hold” would be to see how the delayed impact of the rapid increase in interest rates last year flows through the economy after over a year of Fed tightening.

The Fed is still fighting stubbornly high inflation.?That said, the issues in the banking sector, particularly at First Republic Bank, and the impact on credit availability and future growth have begun to factor into their decisions.

As a result, bond traders have been going back and forth on whether the Fed could announce no increase. So, the range is 0 to .250% Fed Funds rate hike.?

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Economic Calendar:?This Week’s Results.

Inflation:?The inflation component of the GDP (the GDP deflator) came out higher than forecast today.?

That said GDP softened to 1.1% growth in the first quarter of 2023 vs the fourth quarter of 2022 which had 2.6% growth.

While the economy is showing some signs of slowing down, inflation remains stubbornly high and is keeping the Fed on their current policy path for interest rates.

The next inflation report on 5/10 will be another indicator of how the fight on inflation is progressing.

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Banking Sector:?First Republic Bank announced its 1st quarter results and a mini banking crisis followed.?

$100 billion of their deposits (over half) left the bank during the quarter.?

It is unclear if they will survive and how it will happen.

This uncertainty can add another round of volatility as we head into the weekend with First Republic bank in limbo.

??????????????????????????????????Bloomberg article today =- https://www.bloomberg.com/opinion/articles/2023-04-27/first-republic-is-in-limbo#xj4y7vzkg

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Volatility could return.?FOMC announcement on 5/3, uncertainty in the banking sector and the following week on 5/10 the CPI inflation report comes out.?

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Recommendation on purchases is to lock when the deal works.?

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Worth repeating:?The Fed’s dual mandate is Price Stability and Maximum Employment.?So, until inflation drops closer to the Fed’s target of 2% core inflation and the jobs reports begin to indicate a softening in the job market, the Fed believes we are at or near maximum employment and will make moves to reduce inflation pressure using the tools they have.?This means their rate decisions will focus on reducing the stubbornly high inflation we are experiencing.?To fight inflation they have said that the rate increases that have already occurred may need another move higher and be kept there for a longer period of time.??