Macro data says hike, financial (in)stability says hold; BofA says 25bps hike coming

March 17, 2023 6:02 AM EDT
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BofA economist Michael Gapen on the FOMC meeting next week: "At next week’s March FOMC meeting, we look for the Fed to raise its target range for the federal funds rate by 25bp to 4.75-5.0%. The recent market turbulence stemming from distress in several regional banks certainly calls for more caution, but the robust action by policymakers to trigger systemic risk exceptions... is likely to limit fallout."

"In the absence of further events, policymakers are likely to conclude that inflation stability remains a key monetary policy priority and, given that the economic data point to real side resilience and inflation persistence, a view a 25bp rate hike is warranted. Forward guidance, however, is likely to be somewhat dovish, highlighting the emergence of downside risk to the outlook and the policy rate path. Hence, even if the “dot plot” calls for more hikes and the statement says “ongoing” rate hikes are needed to restore price stability, Chair Powell can emphasize that an uncertain outlook means the Fed will remain data – and financial market stress – dependent."

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