REUTERS
"Fed's Powell still expects rate cuts, but inflation progress 'not assured'"
By Howard Schneider
March 6, 2024
WASHINGTON, March 6 (Reuters) - U.S. Federal Reserve Chair Jerome Powell, avoiding disputes over fiscal policy, energy, housing, Ukraine and other tangled issues, told U.S. lawmakers on Wednesday he and his colleagues would “keep our heads down” in a charged presidential election year, with interest rate cuts still likely in coming months but only if warranted by further evidence of falling inflation.
Rate cuts "really will depend on the path of the economy."
"Our focus is on maximum employment and price stability, and the incoming data as they affect the outlook, and those are the things we'll be looking at," Powell told the House Financial Services Committee.
"We are just going to keep our heads down and do our jobs and try to deliver what the public is expecting from us."
Powell in his prepared remarks to the House panel said rate reductions will "likely be appropriate" later this year, "if the economy evolves broadly as expected" and once officials gain more confidence in inflation's steady decline.
Though nothing is guaranteed and progress on inflation "is not assured," Powell said, he regarded the economy as clear of immediate recession risks, with a low 3.7% unemployment rate and broad growth likely to continue, and an expectation that inflation will remain in decline.
"That's the economy that we're trying to achieve."
"We're on a good path so far to be able to get there," Powell said.
But the coming decision of when and how far to reduce the benchmark interest rate is both complex in an economy that is showing signs of continued disinflation but also unexpected strength, and consequential in the upcoming rematch between incumbent President Joe Biden, a Democrat, and Republican former President Donald Trump.
"We're in a political year," Patrick McHenry, a North Carolina Republican and the committee's chairman, said as he opened the hearing by quizzing Powell on the central bank's rate cut plans and noting that everything the Fed does would be seen through the "lens" of the November presidential vote.
Investors currently expect an initial rate reduction in June; Fed officials as of December projected three quarter-point cuts over the course of the year, and will update that outlook at a meeting in two weeks.
Though Fed officials like to say it makes little difference to the economy if they delay any decisions from one meeting to the next, Powell reiterated that the Fed does see competing risks ahead - on the one hand of failing to cut rates soon enough and doing unnecessary damage to the economy, on the other of easing credit conditions too soon and reinvigorating inflation.
For Biden, the outcome of the Fed's debates could influence whether his approval ratings and perceived management of the economy remain low, or whether he heads into the heart of the campaign with low inflation, a low unemployment rate, and falling interest rates.
Further rate hikes, at least, appear to be off the table, with Powell repeating that the current benchmark rate, held in the 5.25% to 5.5% range since July, was "likely at its peak."
"The bar for additional tightening is relatively high," said Nationwide Senior Economist Oren Klachkin, "Only a string of stronger-than-expected economic reports, mainly on the inflation and jobs front, would convince policymakers that tighter policy is warranted."
But an array of asset values have been climbing, overall financial conditions have been growing easier despite the Fed's restrictive policy stance, and some of Powell's colleagues have been talking of "exuberance" in the economy that could again rekindle price pressures.
SOLID OUTLOOK
The central bank's latest Beige Book compendium of anecdotal evidence about the economy offered an apparent upgrade to the already solid outlook, with 11 of 12 Fed regions reporting steady or increased economic activity.
For Powell and his colleagues, that has seemed to leave the bias in favor of delaying any rate cut, particularly as long as the economy remains strong.
The House session, which the Republican majority in particular used to focus on bank regulation, will be followed with a Thursday hearing before the Senate Banking committee.
For the inflation-weary constituents of lawmakers conducting this week's hearings, a high Fed policy rate means elevated interest rates for home mortgages, credit cards and small business loans, which arguably have contributed to Biden's current low approval ratings, even as that tough monetary medicine helps relieve high inflation.
Recent data has done little to clarify what may happen next.
Reports bolstering the "soft-landing" narrative, such as encouraging figures on services prices on Tuesday or signs of slowing consumer spending, have been counterbalanced by others showing inflation stuck in significant ways, such as from still-rising shelter costs, or evidence of unexpected economic strength, such as January's outsized gain of more than 350,000 jobs.
But Powell remained optimistic, saying that the elements of a "soft-landing" were still taking shape even though he would not label it as such.
"We expect inflation to come down, the economy to keep growing," Powell said.
"If that's the case, it will be appropriate for interest rates to come down significantly over the coming years."
Reporting by Howard Schneider; Additional reporting by Lindsay Dunsmuir; Editing by Dan Burns and Andrea Ricci
https://www.reuters.com/markets/us/feds ... 024-03-06/
THE FEDERAL RESERVE
Re: THE FEDERAL RESERVE
CNBC
"Powell says the Fed is ‘not far’ from the point of cutting interest rates"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
PUBLISHED THU, MAR 7 2024
KEY POINTS
* Fed Chair Jerome Powell said inflation is “not far” from where it needs to be for the central bank to start cutting interest rates.
* “I think we’re in the right place,” Powell said of the current policy stance.
Federal Reserve Chair Jerome Powell on Thursday indicated that interest rate cuts may not be too far off if inflation signals cooperate.
In remarks to the Senate Banking Committee, the central bank leader didn’t provide a precise timetable of when he sees easing happening, but noted that the day could be coming soon.
“We’re waiting to become more confident that inflation is moving sustainably at 2%."
"When we do get that confidence, and we’re not far from it, it’ll be appropriate to begin to dial back the level of restriction,” Powell said in response to a question about rates and inflation.
He said the cuts would be so the Fed doesn’t “drive the economy into recession rather than normalizing policy as the economy gets back to normal.”
Powell spoke at a time when financial markets have swung considerably in their expectations on Fed policy.
At the beginning of the year, futures traders were betting the Fed would start in March and keep going until it had cut six or seven times this year.
The outlook now is for the first cut to come in June, with four reductions totaling a full percentage point by the end of 2024.
Inflation data recently has indicated the pace of price increases is continuing to slow, though the consumer price index rattled markets when it came in higher than expected for January.
Still, Powell noted in congressional testimony this week that inflation is progressing lower, though not at the point yet where the Fed is ready to cut.
“I think we’re in the right place,” Powell said of the current policy stance.
https://www.cnbc.com/2024/03/07/powell- ... rates.html
"Powell says the Fed is ‘not far’ from the point of cutting interest rates"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
PUBLISHED THU, MAR 7 2024
KEY POINTS
* Fed Chair Jerome Powell said inflation is “not far” from where it needs to be for the central bank to start cutting interest rates.
* “I think we’re in the right place,” Powell said of the current policy stance.
Federal Reserve Chair Jerome Powell on Thursday indicated that interest rate cuts may not be too far off if inflation signals cooperate.
In remarks to the Senate Banking Committee, the central bank leader didn’t provide a precise timetable of when he sees easing happening, but noted that the day could be coming soon.
“We’re waiting to become more confident that inflation is moving sustainably at 2%."
"When we do get that confidence, and we’re not far from it, it’ll be appropriate to begin to dial back the level of restriction,” Powell said in response to a question about rates and inflation.
He said the cuts would be so the Fed doesn’t “drive the economy into recession rather than normalizing policy as the economy gets back to normal.”
Powell spoke at a time when financial markets have swung considerably in their expectations on Fed policy.
At the beginning of the year, futures traders were betting the Fed would start in March and keep going until it had cut six or seven times this year.
The outlook now is for the first cut to come in June, with four reductions totaling a full percentage point by the end of 2024.
Inflation data recently has indicated the pace of price increases is continuing to slow, though the consumer price index rattled markets when it came in higher than expected for January.
Still, Powell noted in congressional testimony this week that inflation is progressing lower, though not at the point yet where the Fed is ready to cut.
“I think we’re in the right place,” Powell said of the current policy stance.
https://www.cnbc.com/2024/03/07/powell- ... rates.html
Re: THE FEDERAL RESERVE
REUTERS
"Fed's Powell: "Not far" from confidence needed to cut rates"
By Howard Schneider
March 7, 2024
WASHINGTON, March 7 (Reuters) - Federal Reserve Chair Jerome Powell said on Thursday the U.S. central bank was "not far" from gaining the confidence it needs in falling inflation to begin cutting interest rates.
"I think we are in the right place," Powell said of the current stance of monetary policy in a hearing before the Senate Banking Committee.
"We are waiting to become more confident that inflation is moving sustainably down to 2%."
"When we do get that confidence, and we’re not far from it, it will be appropriate to begin to dial back the level of restriction so that we don’t drive the economy into recession.”
The comment showed Powell's faith that recent higher-than-expected inflation readings and other strong economic data won't interrupt the ongoing decline in price pressures that took root last year.
The Fed chair has been reluctant to declare the inflation battle finished, and cautioned in testimony to the Senate panel, as he did Wednesday before the House Financial Services Committee, that further progress back to the Fed's 2% target was not assured.
The most recent data showed headline inflation, as measured by the Fed's preferred Personal Consumption Expenditures price index, at 2.4%, with a related measure of underlying inflation at a slightly higher 2.8%.
But both have been "coming down sharply since the middle of last year," Powell said.
"We've got a ways to go on that, but we've made a lot of progress."
Yields on 2-year Treasury notes fell slightly after Powell's remarks, and investors firmed bets that an initial Fed rate cut would occur in June.
The central bank next meets on March 19-20, and will issue a new policy statement as well as updated rate and economic projections that should shed more light on policymakers' expectations for the year.
Powell's appearance before the Senate committee and a House panel on Wednesday, as is often the case in the twice-yearly round of hearings, was dominated less by monetary policy and more with an ongoing debate about Fed bank regulatory proposals, as well as a host of other issues, including housing policy and whether the Fed would issue a central bank digital currency.
But Powell's update on monetary policy kept intact the sense that the central bank is nearing the point where the current policy rate of interest, held at a more than 20-year high since July in a range between 5.25% and 5.5%, will be lowered in the months ahead.
Pressed at the start of the hearing by the panel's chair, Ohio Democrat Sherrod Brown, on why the Fed was not quicker to cut rates "to prevent workers from losing their jobs," Powell said that was a top-of-mind concern, while nodding also to the economy's resilience.
"We're well aware of that risk, of course, and very conscious of avoiding it," Powell said.
"If what we expect and what we're seeing - continued strong growth, strong labor market and continuing progress in bringing inflation down - if that happens, if the economy evolves over that path, then we do think that the process of carefully removing the restrictive stance of policy can and will begin over the course of this year."
Reporting by Howard Schneider; Editing by Andrea Ricci
https://www.reuters.com/markets/us/feds ... 024-03-07/
"Fed's Powell: "Not far" from confidence needed to cut rates"
By Howard Schneider
March 7, 2024
WASHINGTON, March 7 (Reuters) - Federal Reserve Chair Jerome Powell said on Thursday the U.S. central bank was "not far" from gaining the confidence it needs in falling inflation to begin cutting interest rates.
"I think we are in the right place," Powell said of the current stance of monetary policy in a hearing before the Senate Banking Committee.
"We are waiting to become more confident that inflation is moving sustainably down to 2%."
"When we do get that confidence, and we’re not far from it, it will be appropriate to begin to dial back the level of restriction so that we don’t drive the economy into recession.”
The comment showed Powell's faith that recent higher-than-expected inflation readings and other strong economic data won't interrupt the ongoing decline in price pressures that took root last year.
The Fed chair has been reluctant to declare the inflation battle finished, and cautioned in testimony to the Senate panel, as he did Wednesday before the House Financial Services Committee, that further progress back to the Fed's 2% target was not assured.
The most recent data showed headline inflation, as measured by the Fed's preferred Personal Consumption Expenditures price index, at 2.4%, with a related measure of underlying inflation at a slightly higher 2.8%.
But both have been "coming down sharply since the middle of last year," Powell said.
"We've got a ways to go on that, but we've made a lot of progress."
Yields on 2-year Treasury notes fell slightly after Powell's remarks, and investors firmed bets that an initial Fed rate cut would occur in June.
The central bank next meets on March 19-20, and will issue a new policy statement as well as updated rate and economic projections that should shed more light on policymakers' expectations for the year.
Powell's appearance before the Senate committee and a House panel on Wednesday, as is often the case in the twice-yearly round of hearings, was dominated less by monetary policy and more with an ongoing debate about Fed bank regulatory proposals, as well as a host of other issues, including housing policy and whether the Fed would issue a central bank digital currency.
But Powell's update on monetary policy kept intact the sense that the central bank is nearing the point where the current policy rate of interest, held at a more than 20-year high since July in a range between 5.25% and 5.5%, will be lowered in the months ahead.
Pressed at the start of the hearing by the panel's chair, Ohio Democrat Sherrod Brown, on why the Fed was not quicker to cut rates "to prevent workers from losing their jobs," Powell said that was a top-of-mind concern, while nodding also to the economy's resilience.
"We're well aware of that risk, of course, and very conscious of avoiding it," Powell said.
"If what we expect and what we're seeing - continued strong growth, strong labor market and continuing progress in bringing inflation down - if that happens, if the economy evolves over that path, then we do think that the process of carefully removing the restrictive stance of policy can and will begin over the course of this year."
Reporting by Howard Schneider; Editing by Andrea Ricci
https://www.reuters.com/markets/us/feds ... 024-03-07/
Re: THE FEDERAL RESERVE
REUTERS
"Insight: US regulators greenlit NYCB's rapid growth, even with red flags"
By Pete Schroeder, Michelle Price and Koh Gui Qing
March 7, 2024
WASHINGTON, March 7 (Reuters) - A U.S. banking regulator could have stopped New York Community Bank from pursuing a deal that has contributed to its financial woes.
Instead, they signed off on it.
The Office of the Comptroller of the Currency (OCC) approved NYCB's $2.6 billion merger with Michigan mortgage lender Flagstar Bank even though other regulators feared the deal could create problems at the New York bank, according to people with knowledge of the matter and public records.
When approving the deal, the OCC had concerns about NYCB's big exposure to the ailing commercial real estate (CRE) sector, but believed that the tie-up would help diversify its loan book, according to one person with knowledge of the matter.
The merger pushed the combined bank near a $100 billion regulatory threshold which imposes stiff capital rules.
The looming new requirements, along with the bank's CRE exposure, forced NYCB to slash its dividend in January, sending its shares diving and sparking credit downgrades.
Flagstar also had CRE exposure.
Reuters reported in May both banks were among the top five most exposed, when ranked by a regulatory concentration measure.
Regulators' deliberations reported here for the first time are surfacing a year after Silicon Valley Bank's implosion exposed areas of weak oversight and as policymakers debate the risks of bank mergers.
They help shed light on the missteps that contributed to NYCB's problems and are likely to increase pressure on regulators to be tougher on bank tie-ups.
Interviews with a dozen industry officials, merger experts and regulatory sources, as well as public documents, show how NYCB for years wanted to grow by pulling off a major deal, but when the Federal Deposit Insurance Corporation (FDIC) stood in its way the bank turned to the OCC.
The OCC greenlit the deal even though the FDIC had already privately vetoed the transaction over concerns about the banks' lending practices, according to two of the sources.
Additionally, the OCC disclosed when approving the deal that it was in the middle of an examination into potential discriminatory lending at Flagstar.
Reuters could not ascertain the outcome of that exam.
As a safeguard, the OCC imposed a special condition that required the bank to seek its written approval for future dividend payouts.
With NYCB, now fighting to shore up its balance sheet, approving the Flagstar deal looks to have been a miscalculation, say some regulatory and merger experts.
NYCB last week disclosed a far greater loss than previously stated as well as faults in its lending controls.
But on Wednesday, it said it had raised $1 billion from investors.
On Thursday, the bank disclosed that its deposits fell 7% during the last month and that it will outline a new business plan next month.
It said it has interest from buyers for some of its loans.
"If you've got a banking problem, the solution is not to make it bigger," said Dennis Kelleher, CEO of Washington advocacy group Better Markets that has analyzed the deal.
"The Flagstar-NYCB merger should never have been allowed...on the merits at the time."
A spokesperson for NYCB did not provide comment.
However, both banks filed a detailed merger application which the OCC spent several months reviewing, records show.
RAPID GROWTH, RAPID PAIN
Founded in 1859, NYCB for decades chugged along as a small lender focused on New York real estate.
But the bank wanted to accumulate deposits to generate more interest income, according to one person with direct knowledge of the matter who asked to remain anonymous discussing confidential information.
To grow deposits, former CEO Joseph Ficalora was set on deals, the person said, but his attempt at a transformative tie-up with Astoria Financial was scuttled by regulatory issues in 2016.
After Congress in 2018 relaxed rules for banks with between $50 billion and $250 billion in assets, it became easier to get bank deals done.
Then in April 2021, under CEO Thomas Cangemi, NYCB announced its big move: merging Flagstar into NYCB's New York subsidiary, creating a lender with $87 billion in assets.
Cangemi stepped down as CEO last month.
Ficalora and Cangemi did not respond to requests for comment.
The deal had issues from the start.
NYCB was supervised by the New York Department of Financial Services (NYDFS) and the FDIC.
Both regulators, as well as the Federal Reserve, had to review the deal.
NYDFS approved the deal in April 2022.
But officials at the FDIC had concerns about fair lending practices at Flagstar, and were also worried about the exposure of some of NYCB's multifamily loans, according to sources familiar with the matter.
FDIC officials decided they could not approve the deal, they said.
The sources declined to be identified discussing confidential regulatory information.
The FDIC's fair lending concerns were previously reported by media outlet The Capitol Forum.
Before the FDIC could formally block the deal, the banks announced in April 2022 they were restructuring the transaction so that NYCB would merge into Flagstar, which was regulated by the OCC.
A national OCC charter was appropriate, the banks said at the time.
As a result, the OCC and Federal Reserve had to review the deal, while the FDIC's approval was no longer necessary and the NYDFS would have no oversight of the new entity.
Flipping charters so late in the merger process is unusual, according to lawyers who also said the OCC had ample discretion to block the deal.
One of the sources said FDIC officials were angered by NYCB's move to shop the deal to the OCC.
But some OCC officials were concerned about NYCB's CRE exposure, and believed the deal could help diversify the bank, the source added.
For supervisors, diversification is a positive, said a different regulatory source.
The OCC approved the deal in October 2022.
The Federal Reserve approved it days later.
Months later, NYCB expanded further, buying assets from failed Signature Bank in a deal approved by the OCC and FDIC.
Combined, the Flagstar and Signature deals doubled NYCB's balance sheet to $116 billion.
Spokespeople from the NYDFS, the Fed and FDIC, declined to comment.
MERGER REVIEWS
One sign that the OCC had concerns about NYCB's CRE concentration was its condition in the approval notice that the new bank seek the agency's approval before paying dividends.
The OCC imposed those restrictions to ensure the bank had sufficient resources to address any supervisory issues that arose post-merger, said a regulatory source, echoing the OCC's explanation at the time.
While banks often have to seek some approvals around dividends, such explicit language struck some experts as noteworthy.
"The OCC is signaling in the order that it's got some potential concerns about integration," said Jeremy Kress, a University of Michigan professor who advised the Justice Department on its ongoing bank merger policy review.
Bank mergers have become a contentious issue in Washington as left-leaning Democrats push regulators, including the OCC, to take a tougher stance.
They say allowing banks to get bigger creates systemic risks and increases costs for borrowers.
That debate intensified after lenders including NYCB and JPMorgan were allowed to buy failed bank assets and as analysts expect more struggling banks to consolidate.
The OCC in January proposed overhauling its merger rules.
It is unclear if the NYCB-Flagstar deal would be approved under its planned changes which would subject deals whereby the combined entity has more than $50 billion in assets to additional scrutiny.
"The question is not should we or shouldn't we" allow mergers, Acting Comptroller Michael Hsu told Reuters in an interview about the OCC review on January 26.
"The question is, 'How do we get the best ones?"
Additional reporting by Hannah Lang, Douglas Gillison and Matt Tracy; editing by Megan Davies and Anna Driver
https://www.reuters.com/markets/us/us-r ... 024-03-07/
"Insight: US regulators greenlit NYCB's rapid growth, even with red flags"
By Pete Schroeder, Michelle Price and Koh Gui Qing
March 7, 2024
WASHINGTON, March 7 (Reuters) - A U.S. banking regulator could have stopped New York Community Bank from pursuing a deal that has contributed to its financial woes.
Instead, they signed off on it.
The Office of the Comptroller of the Currency (OCC) approved NYCB's $2.6 billion merger with Michigan mortgage lender Flagstar Bank even though other regulators feared the deal could create problems at the New York bank, according to people with knowledge of the matter and public records.
When approving the deal, the OCC had concerns about NYCB's big exposure to the ailing commercial real estate (CRE) sector, but believed that the tie-up would help diversify its loan book, according to one person with knowledge of the matter.
The merger pushed the combined bank near a $100 billion regulatory threshold which imposes stiff capital rules.
The looming new requirements, along with the bank's CRE exposure, forced NYCB to slash its dividend in January, sending its shares diving and sparking credit downgrades.
Flagstar also had CRE exposure.
Reuters reported in May both banks were among the top five most exposed, when ranked by a regulatory concentration measure.
Regulators' deliberations reported here for the first time are surfacing a year after Silicon Valley Bank's implosion exposed areas of weak oversight and as policymakers debate the risks of bank mergers.
They help shed light on the missteps that contributed to NYCB's problems and are likely to increase pressure on regulators to be tougher on bank tie-ups.
Interviews with a dozen industry officials, merger experts and regulatory sources, as well as public documents, show how NYCB for years wanted to grow by pulling off a major deal, but when the Federal Deposit Insurance Corporation (FDIC) stood in its way the bank turned to the OCC.
The OCC greenlit the deal even though the FDIC had already privately vetoed the transaction over concerns about the banks' lending practices, according to two of the sources.
Additionally, the OCC disclosed when approving the deal that it was in the middle of an examination into potential discriminatory lending at Flagstar.
Reuters could not ascertain the outcome of that exam.
As a safeguard, the OCC imposed a special condition that required the bank to seek its written approval for future dividend payouts.
With NYCB, now fighting to shore up its balance sheet, approving the Flagstar deal looks to have been a miscalculation, say some regulatory and merger experts.
NYCB last week disclosed a far greater loss than previously stated as well as faults in its lending controls.
But on Wednesday, it said it had raised $1 billion from investors.
On Thursday, the bank disclosed that its deposits fell 7% during the last month and that it will outline a new business plan next month.
It said it has interest from buyers for some of its loans.
"If you've got a banking problem, the solution is not to make it bigger," said Dennis Kelleher, CEO of Washington advocacy group Better Markets that has analyzed the deal.
"The Flagstar-NYCB merger should never have been allowed...on the merits at the time."
A spokesperson for NYCB did not provide comment.
However, both banks filed a detailed merger application which the OCC spent several months reviewing, records show.
RAPID GROWTH, RAPID PAIN
Founded in 1859, NYCB for decades chugged along as a small lender focused on New York real estate.
But the bank wanted to accumulate deposits to generate more interest income, according to one person with direct knowledge of the matter who asked to remain anonymous discussing confidential information.
To grow deposits, former CEO Joseph Ficalora was set on deals, the person said, but his attempt at a transformative tie-up with Astoria Financial was scuttled by regulatory issues in 2016.
After Congress in 2018 relaxed rules for banks with between $50 billion and $250 billion in assets, it became easier to get bank deals done.
Then in April 2021, under CEO Thomas Cangemi, NYCB announced its big move: merging Flagstar into NYCB's New York subsidiary, creating a lender with $87 billion in assets.
Cangemi stepped down as CEO last month.
Ficalora and Cangemi did not respond to requests for comment.
The deal had issues from the start.
NYCB was supervised by the New York Department of Financial Services (NYDFS) and the FDIC.
Both regulators, as well as the Federal Reserve, had to review the deal.
NYDFS approved the deal in April 2022.
But officials at the FDIC had concerns about fair lending practices at Flagstar, and were also worried about the exposure of some of NYCB's multifamily loans, according to sources familiar with the matter.
FDIC officials decided they could not approve the deal, they said.
The sources declined to be identified discussing confidential regulatory information.
The FDIC's fair lending concerns were previously reported by media outlet The Capitol Forum.
Before the FDIC could formally block the deal, the banks announced in April 2022 they were restructuring the transaction so that NYCB would merge into Flagstar, which was regulated by the OCC.
A national OCC charter was appropriate, the banks said at the time.
As a result, the OCC and Federal Reserve had to review the deal, while the FDIC's approval was no longer necessary and the NYDFS would have no oversight of the new entity.
Flipping charters so late in the merger process is unusual, according to lawyers who also said the OCC had ample discretion to block the deal.
One of the sources said FDIC officials were angered by NYCB's move to shop the deal to the OCC.
But some OCC officials were concerned about NYCB's CRE exposure, and believed the deal could help diversify the bank, the source added.
For supervisors, diversification is a positive, said a different regulatory source.
The OCC approved the deal in October 2022.
The Federal Reserve approved it days later.
Months later, NYCB expanded further, buying assets from failed Signature Bank in a deal approved by the OCC and FDIC.
Combined, the Flagstar and Signature deals doubled NYCB's balance sheet to $116 billion.
Spokespeople from the NYDFS, the Fed and FDIC, declined to comment.
MERGER REVIEWS
One sign that the OCC had concerns about NYCB's CRE concentration was its condition in the approval notice that the new bank seek the agency's approval before paying dividends.
The OCC imposed those restrictions to ensure the bank had sufficient resources to address any supervisory issues that arose post-merger, said a regulatory source, echoing the OCC's explanation at the time.
While banks often have to seek some approvals around dividends, such explicit language struck some experts as noteworthy.
"The OCC is signaling in the order that it's got some potential concerns about integration," said Jeremy Kress, a University of Michigan professor who advised the Justice Department on its ongoing bank merger policy review.
Bank mergers have become a contentious issue in Washington as left-leaning Democrats push regulators, including the OCC, to take a tougher stance.
They say allowing banks to get bigger creates systemic risks and increases costs for borrowers.
That debate intensified after lenders including NYCB and JPMorgan were allowed to buy failed bank assets and as analysts expect more struggling banks to consolidate.
The OCC in January proposed overhauling its merger rules.
It is unclear if the NYCB-Flagstar deal would be approved under its planned changes which would subject deals whereby the combined entity has more than $50 billion in assets to additional scrutiny.
"The question is not should we or shouldn't we" allow mergers, Acting Comptroller Michael Hsu told Reuters in an interview about the OCC review on January 26.
"The question is, 'How do we get the best ones?"
Additional reporting by Hannah Lang, Douglas Gillison and Matt Tracy; editing by Megan Davies and Anna Driver
https://www.reuters.com/markets/us/us-r ... 024-03-07/
Re: THE FEDERAL RESERVE
REUTERS
"Fed's Bowman: "Not yet" ready for rate cuts, willing to hike again if needed"
By Howard Schneider
March 7, 2024
WASHINGTON, March 7 (Reuters) - The U.S. economy is not at the point where the Federal Reserve should reduce interest rates, Fed Governor Michelle Bowman said on Thursday, and while the baseline remains for falling inflation and eventual rate cuts, tighter monetary policy still can't be ruled out.
"While the current stance of monetary policy appears to be at a restrictive level that will bring inflation down to 2% over time, I remain willing to raise the federal funds rate at a future meeting should the incoming data indicate that progress on inflation has stalled or reversed," Bowman said in remarks to a New Jersey Bankers group that largely focused on her views about bank regulation and supervision.
Bowman, who has been among the more hawkish policymakers in her views on inflation and inflation risks, said she did feel the current benchmark policy rate, held at the 5.25% to 5.5% range by the Fed since July, seemed "to be appropriately calibrated to reduce inflationary pressures..."
"My baseline outlook continues to be that inflation will decline further with the policy rate held steady."
Yet she also noted forces that could push inflation higher, including overseas conflicts that could influence commodity prices, but also closer-to-home dynamics like the recent loosening of financial conditions in the U.S., and ongoing high wage growth among U.S. firms.
"Should the incoming data continue to indicate that inflation is moving sustainably toward our 2% goal, it will eventually become appropriate to gradually lower our policy rate to prevent monetary policy from becoming overly restrictive," Bowman said.
"In my view, we are not yet at that point."
"Reducing our policy rate too soon could result in requiring further future policy rate increases to return inflation to 2% over the longer run."
Reporting by Howard Schneider; Editing by Andrea Ricci
https://www.reuters.com/markets/us/feds ... 024-03-07/
"Fed's Bowman: "Not yet" ready for rate cuts, willing to hike again if needed"
By Howard Schneider
March 7, 2024
WASHINGTON, March 7 (Reuters) - The U.S. economy is not at the point where the Federal Reserve should reduce interest rates, Fed Governor Michelle Bowman said on Thursday, and while the baseline remains for falling inflation and eventual rate cuts, tighter monetary policy still can't be ruled out.
"While the current stance of monetary policy appears to be at a restrictive level that will bring inflation down to 2% over time, I remain willing to raise the federal funds rate at a future meeting should the incoming data indicate that progress on inflation has stalled or reversed," Bowman said in remarks to a New Jersey Bankers group that largely focused on her views about bank regulation and supervision.
Bowman, who has been among the more hawkish policymakers in her views on inflation and inflation risks, said she did feel the current benchmark policy rate, held at the 5.25% to 5.5% range by the Fed since July, seemed "to be appropriately calibrated to reduce inflationary pressures..."
"My baseline outlook continues to be that inflation will decline further with the policy rate held steady."
Yet she also noted forces that could push inflation higher, including overseas conflicts that could influence commodity prices, but also closer-to-home dynamics like the recent loosening of financial conditions in the U.S., and ongoing high wage growth among U.S. firms.
"Should the incoming data continue to indicate that inflation is moving sustainably toward our 2% goal, it will eventually become appropriate to gradually lower our policy rate to prevent monetary policy from becoming overly restrictive," Bowman said.
"In my view, we are not yet at that point."
"Reducing our policy rate too soon could result in requiring further future policy rate increases to return inflation to 2% over the longer run."
Reporting by Howard Schneider; Editing by Andrea Ricci
https://www.reuters.com/markets/us/feds ... 024-03-07/
Re: THE FEDERAL RESERVE
REUTERS
"Fed's Mester still sees rate cuts later this year"
By Michael S. Derby
March 7, 2024
March 7 (Reuters) - Federal Reserve Bank of Cleveland President Loretta Mester reiterated on Thursday that she believes the central bank will be able to lower interest rates this year, but she noted there is no urgency to act right yet.
Fed interest rate policy is in a “good place” to take stock of the economy’s performance and the central bank has the “luxury” of waiting before acting on rates, Mester said in the text of a speech to be given before an event in London.
While Mester reiterated her expectation that inflation will continue to move back toward 2%, perhaps more slowly this year than it did last year, she also reiterated that she needs to gain confidence price pressures are in fact waning.
She noted “at this point, I think the bigger mistake would be to move rates down too soon or too quickly without sufficient evidence that inflation is on a sustainable and timely path back to 2%.”
But given the outlook, Mester, who has a vote on the rate-setting Federal Open Market Committee in 2024 but will retire later this year, still expects the central bank will lower its interest rate target range this year.
That range is currently set at between 5.25% and 5.5%.
If the economy does what it is projected to do, when it comes to lowering rates, “I expect we will find ourselves in that position sometime later this year,” she said.
“My base case is that when we do begin to move rates down, we will do so at a gradual pace so that we can continue to manage the risks to both sides of our mandate.”
Mester made her remarks as Fed Chair Jerome Powell spoke before a Senate committee in a second day of testimony on the monetary policy and economic outlook.
Powell repeated his expectation that the Fed will be able to lower rates later this year if price pressures continue to ebb.
Mester also said in her remarks the Fed will slow before stopping its ongoing balance sheet winddown.
Reporting by Michael S. Derby; Editing by Andrea Ricci
https://www.reuters.com/markets/us/feds ... 024-03-07/
"Fed's Mester still sees rate cuts later this year"
By Michael S. Derby
March 7, 2024
March 7 (Reuters) - Federal Reserve Bank of Cleveland President Loretta Mester reiterated on Thursday that she believes the central bank will be able to lower interest rates this year, but she noted there is no urgency to act right yet.
Fed interest rate policy is in a “good place” to take stock of the economy’s performance and the central bank has the “luxury” of waiting before acting on rates, Mester said in the text of a speech to be given before an event in London.
While Mester reiterated her expectation that inflation will continue to move back toward 2%, perhaps more slowly this year than it did last year, she also reiterated that she needs to gain confidence price pressures are in fact waning.
She noted “at this point, I think the bigger mistake would be to move rates down too soon or too quickly without sufficient evidence that inflation is on a sustainable and timely path back to 2%.”
But given the outlook, Mester, who has a vote on the rate-setting Federal Open Market Committee in 2024 but will retire later this year, still expects the central bank will lower its interest rate target range this year.
That range is currently set at between 5.25% and 5.5%.
If the economy does what it is projected to do, when it comes to lowering rates, “I expect we will find ourselves in that position sometime later this year,” she said.
“My base case is that when we do begin to move rates down, we will do so at a gradual pace so that we can continue to manage the risks to both sides of our mandate.”
Mester made her remarks as Fed Chair Jerome Powell spoke before a Senate committee in a second day of testimony on the monetary policy and economic outlook.
Powell repeated his expectation that the Fed will be able to lower rates later this year if price pressures continue to ebb.
Mester also said in her remarks the Fed will slow before stopping its ongoing balance sheet winddown.
Reporting by Michael S. Derby; Editing by Andrea Ricci
https://www.reuters.com/markets/us/feds ... 024-03-07/
Re: THE FEDERAL RESERVE
REUTERS
"US job market data bolsters Fed's 'no rush' rate cut view"
By Ann Saphir and Howard Schneider
March 8, 2024
March 8 (Reuters) - Federal Reserve policymakers weighing when to start interest-rate cuts got fresh reasons on Friday to remain on standby, after a government report showed robust job growth in February but also signs of labor market cooling that could help the Fed's battle with inflation.
U.S. employers added 275,000 jobs last month, a Labor Department report showed on Friday, handily beating the 200,000 that economists expected.
But the report's revisions of prior months' estimates showed smaller job gains in January and December than had earlier been thought, and other details of the report suggested a rebalancing in the labor market continues.
The U.S. unemployment rate rose to 3.9%, its highest in two years, though still below levels the Fed sees as sustainable in the long-run.
And wage growth has continued to edge down, rising 4.3% in February from a year earlier, down from 4.4% in January.
Fed policymakers won't see that growth as consistent yet with their 2% inflation goal, but it is moving in the right direction.
In testimony on Capitol Hill this week, Fed Chair Jerome Powell said he feels the economy is healthy and policymakers are "not far" from having enough confidence on inflation's downward direction to start reducing interest rates.
Friday's report showing the labor market is still strong but easing slowly "will provide reassurance to the Fed that real economic conditions remain broadly consistent with inflation converging durably towards 2%, and it will be appropriate to cut by June," said Evercore ISI's Krishna Guha.
Futures contracts that settle to the Fed policy rate now point to about an 80% chance the Fed will start cutting interest-rates by mid-June, with a little more than a one-in-four chance of a May 1 start.
Traders firmed up their expectations for a full percentage point of rate cuts by the end of the year, the equivalent of four quarter-point reductions over the remaining seven Fed policy-setting meetings this year.
INFLATION KEY
Fed policymakers next meet March 19-20, and are nearly universally expected to keep the policy rate in the current 5.25%-5.5% range, where it has been since last July.
Powell said this week that range is likely to be the peak and is putting downward pressure on price pressures.
With inflation by the Fed's targeted measure, at 2.4%, still above the Fed's 2% goal, policymakers are looking for further assurance that it is headed durably downward before they decide to cut rates.
Instead, since the start of the year, some readings on inflation have been stronger than expected, prompting some Fed policymakers to say they may need to delay rate cuts a bit longer.
Fed Governor Christopher Waller, whose takes on monetary policy have proven prescient over the past couple of years, said in February that he wants a couple more months of data to verify progress on inflation, and that strong job gains underscore there is "no rush" to cut rates.
Meanwhile policymakers continue to look for any signals the labor market is cracking under the pressure of the highest U.S. policy rate in decades.
Analysts said they won't find much in Friday's jobs report.
"It is clear that the pace of hiring is cooling, which was to have been expected," wrote Regions Financial Corp Chief Economist Richard Moody.
"There is, however, nothing in the data, including the higher jobless rate, that tells us the labor market is on the verge of rolling over."
Reporting by Ann Saphir; Editing by Chizu Nomiyama and Andrea Ricci
https://www.reuters.com/markets/us/fed- ... 024-03-08/
"US job market data bolsters Fed's 'no rush' rate cut view"
By Ann Saphir and Howard Schneider
March 8, 2024
March 8 (Reuters) - Federal Reserve policymakers weighing when to start interest-rate cuts got fresh reasons on Friday to remain on standby, after a government report showed robust job growth in February but also signs of labor market cooling that could help the Fed's battle with inflation.
U.S. employers added 275,000 jobs last month, a Labor Department report showed on Friday, handily beating the 200,000 that economists expected.
But the report's revisions of prior months' estimates showed smaller job gains in January and December than had earlier been thought, and other details of the report suggested a rebalancing in the labor market continues.
The U.S. unemployment rate rose to 3.9%, its highest in two years, though still below levels the Fed sees as sustainable in the long-run.
And wage growth has continued to edge down, rising 4.3% in February from a year earlier, down from 4.4% in January.
Fed policymakers won't see that growth as consistent yet with their 2% inflation goal, but it is moving in the right direction.
In testimony on Capitol Hill this week, Fed Chair Jerome Powell said he feels the economy is healthy and policymakers are "not far" from having enough confidence on inflation's downward direction to start reducing interest rates.
Friday's report showing the labor market is still strong but easing slowly "will provide reassurance to the Fed that real economic conditions remain broadly consistent with inflation converging durably towards 2%, and it will be appropriate to cut by June," said Evercore ISI's Krishna Guha.
Futures contracts that settle to the Fed policy rate now point to about an 80% chance the Fed will start cutting interest-rates by mid-June, with a little more than a one-in-four chance of a May 1 start.
Traders firmed up their expectations for a full percentage point of rate cuts by the end of the year, the equivalent of four quarter-point reductions over the remaining seven Fed policy-setting meetings this year.
INFLATION KEY
Fed policymakers next meet March 19-20, and are nearly universally expected to keep the policy rate in the current 5.25%-5.5% range, where it has been since last July.
Powell said this week that range is likely to be the peak and is putting downward pressure on price pressures.
With inflation by the Fed's targeted measure, at 2.4%, still above the Fed's 2% goal, policymakers are looking for further assurance that it is headed durably downward before they decide to cut rates.
Instead, since the start of the year, some readings on inflation have been stronger than expected, prompting some Fed policymakers to say they may need to delay rate cuts a bit longer.
Fed Governor Christopher Waller, whose takes on monetary policy have proven prescient over the past couple of years, said in February that he wants a couple more months of data to verify progress on inflation, and that strong job gains underscore there is "no rush" to cut rates.
Meanwhile policymakers continue to look for any signals the labor market is cracking under the pressure of the highest U.S. policy rate in decades.
Analysts said they won't find much in Friday's jobs report.
"It is clear that the pace of hiring is cooling, which was to have been expected," wrote Regions Financial Corp Chief Economist Richard Moody.
"There is, however, nothing in the data, including the higher jobless rate, that tells us the labor market is on the verge of rolling over."
Reporting by Ann Saphir; Editing by Chizu Nomiyama and Andrea Ricci
https://www.reuters.com/markets/us/fed- ... 024-03-08/
Re: THE FEDERAL RESERVE
REUTERS
"Fed's Williams: Neutral rate is likely still low"
By Michael S. Derby
March 8, 2024
March 8 (Reuters) - Federal Reserve Bank of New York President John Williams said Friday that he suspects the "neutral" state of interest rates hasn't risen much in the wake of the coronavirus pandemic.
It's likely that based on the most recent data “the neutral rate is still quite low," Williams said in an appearance in London, referring to a level where interest rates neither boost nor slow the economy.
Williams did not comment on the monetary policy or economic outlook in his appearance, but he reiterated that achieving price stability is a core responsibility of the central bank.
He also said that politics do not factor into the central bank's decision-making process.
In recent comments Williams has said he expects the Fed to lower its interest rate target this year but he has not signaled when he expects that to happen.
Reporting by Michael S. Derby; Editing by Mark Potter and Toby Chopra
https://www.reuters.com/markets/us/feds ... 024-03-08/
"Fed's Williams: Neutral rate is likely still low"
By Michael S. Derby
March 8, 2024
March 8 (Reuters) - Federal Reserve Bank of New York President John Williams said Friday that he suspects the "neutral" state of interest rates hasn't risen much in the wake of the coronavirus pandemic.
It's likely that based on the most recent data “the neutral rate is still quite low," Williams said in an appearance in London, referring to a level where interest rates neither boost nor slow the economy.
Williams did not comment on the monetary policy or economic outlook in his appearance, but he reiterated that achieving price stability is a core responsibility of the central bank.
He also said that politics do not factor into the central bank's decision-making process.
In recent comments Williams has said he expects the Fed to lower its interest rate target this year but he has not signaled when he expects that to happen.
Reporting by Michael S. Derby; Editing by Mark Potter and Toby Chopra
https://www.reuters.com/markets/us/feds ... 024-03-08/
Re: THE FEDERAL RESERVE
REUTERS
"NY Fed: Consumer outlook on longer-term inflation hit snag in February"
By Michael S. Derby
March 11, 2024
NEW YORK, March 11 (Reuters) - The public’s expectations around the longer-run trajectory of inflation deteriorated in February, a report from the Federal Reserve Bank of New York said Monday.
While inflation a year from now was seen holding steady at 3%, respondents to the bank’s latest Survey of Consumer Expectations said that they see inflation three years from now moving to 2.7% from January’s 2.4%, with inflation in five years at 2.9%, from the prior month’s 2.5%.
The rise in the three-year expected rate of inflation was the first month-over-month gain since last September, while the month-over-month rise in the five year was the first since last August.
The deterioration in longer-run inflation expectations is likely to unsettle Federal Reserve officials, who are now in the preparation phase for their March 19-20 Federal Open Market Committee meeting.
While Fed officials are almost certain to hold rates steady at the gathering, many policy makers have said they expect to cut rates at some point later this year as inflation pressures have been moderating back toward the 2% target.
Fed officials believe that where the public expects inflation to go strongly influences where it stands today.
They’ve repeatedly flagged the relative stability of longer-term expectations as a reason they are confident inflation will return to the target.
Officials have also warned the road to lower inflation will likely be uneven and bumpy.
Some recent inflation data has proven stronger-than-expected, which may have influenced the recent round of expectations data.
Despite the shift in longer-run expectations some of the details of what the public projects for price pressures was more benign.
Survey respondents said they see price rises for medical care and college ebbing, while future food price gains were seen holding steady.
Respondents saw last month a decline in year-ahead rent price gains to 6.1% from January’s 6.4%, the lowest reading since December 2020.
Home price increases were seen flat at 3% and gasoline prices were seen rising only modestly compared to January at 4.3%.
The report also found that those who most strongly projected rises in longer run inflation expectations had at best high school degrees, while noting a declining overall disagreement about the future path of inflation.
Survey respondents in February held steady on their expectations for future income and earnings growth, while boosting their spending expectations.
Respondents were a little more downbeat on job market prospects and said last month that their views on credit access had also sagged.
Reporting by Michael S. Derby; Editing by Chizu Nomiyama
https://www.reuters.com/markets/us/ny-f ... 024-03-11/
"NY Fed: Consumer outlook on longer-term inflation hit snag in February"
By Michael S. Derby
March 11, 2024
NEW YORK, March 11 (Reuters) - The public’s expectations around the longer-run trajectory of inflation deteriorated in February, a report from the Federal Reserve Bank of New York said Monday.
While inflation a year from now was seen holding steady at 3%, respondents to the bank’s latest Survey of Consumer Expectations said that they see inflation three years from now moving to 2.7% from January’s 2.4%, with inflation in five years at 2.9%, from the prior month’s 2.5%.
The rise in the three-year expected rate of inflation was the first month-over-month gain since last September, while the month-over-month rise in the five year was the first since last August.
The deterioration in longer-run inflation expectations is likely to unsettle Federal Reserve officials, who are now in the preparation phase for their March 19-20 Federal Open Market Committee meeting.
While Fed officials are almost certain to hold rates steady at the gathering, many policy makers have said they expect to cut rates at some point later this year as inflation pressures have been moderating back toward the 2% target.
Fed officials believe that where the public expects inflation to go strongly influences where it stands today.
They’ve repeatedly flagged the relative stability of longer-term expectations as a reason they are confident inflation will return to the target.
Officials have also warned the road to lower inflation will likely be uneven and bumpy.
Some recent inflation data has proven stronger-than-expected, which may have influenced the recent round of expectations data.
Despite the shift in longer-run expectations some of the details of what the public projects for price pressures was more benign.
Survey respondents said they see price rises for medical care and college ebbing, while future food price gains were seen holding steady.
Respondents saw last month a decline in year-ahead rent price gains to 6.1% from January’s 6.4%, the lowest reading since December 2020.
Home price increases were seen flat at 3% and gasoline prices were seen rising only modestly compared to January at 4.3%.
The report also found that those who most strongly projected rises in longer run inflation expectations had at best high school degrees, while noting a declining overall disagreement about the future path of inflation.
Survey respondents in February held steady on their expectations for future income and earnings growth, while boosting their spending expectations.
Respondents were a little more downbeat on job market prospects and said last month that their views on credit access had also sagged.
Reporting by Michael S. Derby; Editing by Chizu Nomiyama
https://www.reuters.com/markets/us/ny-f ... 024-03-11/
Re: THE FEDERAL RESERVE
CNBC
"Fed holds rates steady and maintains three cuts coming sometime this year"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
PUBLISHED WED, MAR 20 2024
KEY POINTS
* Following its two-day policy meeting, the central bank’s rate-setting Federal Open Market Committee said it will keep its benchmark overnight borrowing rate in a range between 5.25%-5.5%.
* Along with the decision, Fed officials penciled in three quarter-percentage point cuts by the end of 2024, which would be the first reductions since the early days of the Covid pandemic in March 2020.
The Federal Reserve on Wednesday held interest rates steady as expected and signaled it still plans multiple cuts before the end of the year.
Following its two-day policy meeting, the central bank’s rate-setting Federal Open Market Committee said it will keep its benchmark overnight borrowing rate in a range between 5.25%-5.5%, where it has held since July 2023.
Along with the decision, Fed officials penciled in three quarter-percentage point cuts by the end of 2024, which would be the first reductions since the early days of the Covid pandemic in March 2020.
The current federal funds rate level is the highest in more than 23 years.
The rate sets what banks charge each other for overnight lending but feeds through to many forms of consumer debt.
The outlook for three cuts came from the Fed’s “dot plot,” a closely watched matrix of anonymous projections from the 19 officials who comprise the FOMC.
The chart provides no indication for the timing of the moves.
Chair Jerome Powell said the Fed also did not elaborate on timing but said he still expects the cuts to come, as long as the data cooperate.
Futures markets following the meeting were pricing in a nearly 75% probability that the first cut comes at the June 11-12 meeting, according to the CME Group’s FedWatch gauge.
“We believe that our policy rate is likely at its peak for this type of cycle, and that if the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year,” Powell said at his post-meeting news conference.
“We are prepared to maintain the current target range for the federal funds rate for longer if appropriate.”
The plot indicated three cuts in 2025 – one fewer than the last time the grid was updated in December.
The committee sees three more reductions in 2026 and then two more in the future until the fed funds rate settles in around 2.6%, near what policymakers estimate to be the “neutral rate” that is neither stimulative nor restrictive.
The grid is part of the Fed’s Summary of Economic Projections, which also provides estimates for gross domestic product, inflation and unemployment.
The dot assortment skewed somewhat hawkish from December in terms of deviations from the median, but not enough to change this year’s projections.
Markets rallied following the release of the FOMC decision.
The Dow Jones Industrial Average finished the session up 401 points, or just over 1%.
Treasury yields headed mostly lower, with the benchmark 10-year note most recently at 4.28%, off 0.01 percentage point.
“The sum total of this ‘no news is good news’ press conference is that markets continue to have a green light to run higher,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.
“We aren’t surprised to see the initial reaction from investors to be to push stock prices up and expect that to continue until some new shock hits the system because this Fed isn’t going to stand in the way of the bull market.”
Raises GDP forecast
Officials sharply accelerated their projections for GDP growth this year and now see the economy running at a 2.1% annualized rate, up from the 1.4% estimate in December.
The unemployment rate forecast moved slightly lower from the previous estimate to 4%, while the projection for core inflation as measured by personal consumption expenditures rose to 2.6%, up 0.2 percentage point from before but slightly below the most recent level of 2.8%.
The unemployment rate for February was 3.9%.
The outlook for GDP also rose incrementally for the next two years.
Core PCE inflation is expected to get back to target by 2026, same as in December.
The FOMC’s post-meeting statement was almost identical to the one delivered at its last meeting in January save for an upgrade on its job growth assessment to “strong” from the January characterization that gains had “moderated.”
The decision to stand pat on rates was approved unanimously.
Markets had been watching closely for clues about where the Fed would go from here with monetary policy.
Earlier this year, traders in the fed funds futures market had strongly priced in a likelihood that the central bank would start cutting at this week’s meeting and continue doing so until it had totaled as many as seven decreases by the end of the year.
However, recent developments have changed that outlook dramatically.
Higher-than-expected inflation data to start 2024 triggered caution from top Fed officials, and the January FOMC meeting concluded with the central bank saying it needed more evidence that prices were decelerating before it would gain “greater confidence” on inflation and start cutting.
Statements from Powell and other policymakers since then added to the sentiment of a patient, data-driven approach, and markets have had to reprice.
Powell and his cohorts have indicated that with the economy still growing at a healthy pace and unemployment below 4%, they can take a more measured approach when loosening monetary policy.
“The economy is strong, inflation has come way down,” Powell said, “and that gives us the ability to approach this question carefully and feel more confident that inflation is moving down sustainably at 2% when we take that step to begin dialing back our restrictive policy.”
The expectation heading into this week’s meeting is for the first cut to happen in June and two more to follow, bringing markets and Fed officials back into alignment.
Beyond that, markets also were looking for some direction on the Fed’s balance sheet reduction program.
In a process that began in June 2022, the central bank is allowing up to $60 billion a month in maturing proceeds from Treasurys plus up to $35 billion in mortgage-backed securities to roll off each month rather than be reinvested.
The process is often referred to as “quantitative tightening” and has resulted in about a $1.4 trillion drawdown in the Fed’s holdings.
Powell confirmed the issue was discussed at the meeting but noted that no decisions were made on the extent and timing of the potential balance sheet reduction.
“While we did not make any decisions today, the general sense of the committee is that it will be appropriate to slow the pace of runoff fairly soon, consistent with the plans we previously issued,” he said.
https://www.cnbc.com/2024/03/20/fed-mee ... 2024-.html
"Fed holds rates steady and maintains three cuts coming sometime this year"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
PUBLISHED WED, MAR 20 2024
KEY POINTS
* Following its two-day policy meeting, the central bank’s rate-setting Federal Open Market Committee said it will keep its benchmark overnight borrowing rate in a range between 5.25%-5.5%.
* Along with the decision, Fed officials penciled in three quarter-percentage point cuts by the end of 2024, which would be the first reductions since the early days of the Covid pandemic in March 2020.
The Federal Reserve on Wednesday held interest rates steady as expected and signaled it still plans multiple cuts before the end of the year.
Following its two-day policy meeting, the central bank’s rate-setting Federal Open Market Committee said it will keep its benchmark overnight borrowing rate in a range between 5.25%-5.5%, where it has held since July 2023.
Along with the decision, Fed officials penciled in three quarter-percentage point cuts by the end of 2024, which would be the first reductions since the early days of the Covid pandemic in March 2020.
The current federal funds rate level is the highest in more than 23 years.
The rate sets what banks charge each other for overnight lending but feeds through to many forms of consumer debt.
The outlook for three cuts came from the Fed’s “dot plot,” a closely watched matrix of anonymous projections from the 19 officials who comprise the FOMC.
The chart provides no indication for the timing of the moves.
Chair Jerome Powell said the Fed also did not elaborate on timing but said he still expects the cuts to come, as long as the data cooperate.
Futures markets following the meeting were pricing in a nearly 75% probability that the first cut comes at the June 11-12 meeting, according to the CME Group’s FedWatch gauge.
“We believe that our policy rate is likely at its peak for this type of cycle, and that if the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year,” Powell said at his post-meeting news conference.
“We are prepared to maintain the current target range for the federal funds rate for longer if appropriate.”
The plot indicated three cuts in 2025 – one fewer than the last time the grid was updated in December.
The committee sees three more reductions in 2026 and then two more in the future until the fed funds rate settles in around 2.6%, near what policymakers estimate to be the “neutral rate” that is neither stimulative nor restrictive.
The grid is part of the Fed’s Summary of Economic Projections, which also provides estimates for gross domestic product, inflation and unemployment.
The dot assortment skewed somewhat hawkish from December in terms of deviations from the median, but not enough to change this year’s projections.
Markets rallied following the release of the FOMC decision.
The Dow Jones Industrial Average finished the session up 401 points, or just over 1%.
Treasury yields headed mostly lower, with the benchmark 10-year note most recently at 4.28%, off 0.01 percentage point.
“The sum total of this ‘no news is good news’ press conference is that markets continue to have a green light to run higher,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.
“We aren’t surprised to see the initial reaction from investors to be to push stock prices up and expect that to continue until some new shock hits the system because this Fed isn’t going to stand in the way of the bull market.”
Raises GDP forecast
Officials sharply accelerated their projections for GDP growth this year and now see the economy running at a 2.1% annualized rate, up from the 1.4% estimate in December.
The unemployment rate forecast moved slightly lower from the previous estimate to 4%, while the projection for core inflation as measured by personal consumption expenditures rose to 2.6%, up 0.2 percentage point from before but slightly below the most recent level of 2.8%.
The unemployment rate for February was 3.9%.
The outlook for GDP also rose incrementally for the next two years.
Core PCE inflation is expected to get back to target by 2026, same as in December.
The FOMC’s post-meeting statement was almost identical to the one delivered at its last meeting in January save for an upgrade on its job growth assessment to “strong” from the January characterization that gains had “moderated.”
The decision to stand pat on rates was approved unanimously.
Markets had been watching closely for clues about where the Fed would go from here with monetary policy.
Earlier this year, traders in the fed funds futures market had strongly priced in a likelihood that the central bank would start cutting at this week’s meeting and continue doing so until it had totaled as many as seven decreases by the end of the year.
However, recent developments have changed that outlook dramatically.
Higher-than-expected inflation data to start 2024 triggered caution from top Fed officials, and the January FOMC meeting concluded with the central bank saying it needed more evidence that prices were decelerating before it would gain “greater confidence” on inflation and start cutting.
Statements from Powell and other policymakers since then added to the sentiment of a patient, data-driven approach, and markets have had to reprice.
Powell and his cohorts have indicated that with the economy still growing at a healthy pace and unemployment below 4%, they can take a more measured approach when loosening monetary policy.
“The economy is strong, inflation has come way down,” Powell said, “and that gives us the ability to approach this question carefully and feel more confident that inflation is moving down sustainably at 2% when we take that step to begin dialing back our restrictive policy.”
The expectation heading into this week’s meeting is for the first cut to happen in June and two more to follow, bringing markets and Fed officials back into alignment.
Beyond that, markets also were looking for some direction on the Fed’s balance sheet reduction program.
In a process that began in June 2022, the central bank is allowing up to $60 billion a month in maturing proceeds from Treasurys plus up to $35 billion in mortgage-backed securities to roll off each month rather than be reinvested.
The process is often referred to as “quantitative tightening” and has resulted in about a $1.4 trillion drawdown in the Fed’s holdings.
Powell confirmed the issue was discussed at the meeting but noted that no decisions were made on the extent and timing of the potential balance sheet reduction.
“While we did not make any decisions today, the general sense of the committee is that it will be appropriate to slow the pace of runoff fairly soon, consistent with the plans we previously issued,” he said.
https://www.cnbc.com/2024/03/20/fed-mee ... 2024-.html