Ahead of the Federal Reserve’s July meeting, banks and fund managers predicted the interest rate hike they were expecting for that meeting would be the last from the central bank, according to Federal Reserve surveys of New York released Thursday.
At the last Federal Open Market Committee meeting, officials raised their target rate by a quarter of a percentage point to between 5.25% and 5.50%, which is in line with what respondents in as part of the surveys of major banks and fund managers had anticipated.
The next Fed meeting is September 19-20, and futures markets are not currently pricing in any increases for that meeting.
Prior to the July 25-26 FOMC meeting, core traders also believed the Fed would be able to cut rates at the April 2024 meeting. market, which are primarily fund managers, expected rate cuts to begin earlier, with a quarter-percentage-point easing at the March 2024 meeting.
By the last quarter of next year, primary traders told the New York Fed they expect a 4% federal funds rate, while the survey of market participants predicted a rate of 3.88%.
Many expect the Fed to ease rates next year to maintain the overall strength of monetary policy at a time when inflation is expected to ease further.
The survey of primary traders showed that banks expect the Fed to sell Treasury securities to end by the third quarter of next year. The process of phasing out mortgage-backed securities could extend beyond 2025, when banks were surveyed.
The big banks expect the full liquidation of the Fed’s balance sheet, which is complementary to its interest rate policy, to be completed in the second or third quarter of next year, when holdings will amount to $6.75 trillion. Fed holdings peaked in the summer of 2022 at just under $9 trillion and currently stand at $8.3 trillion.
The New York Fed’s survey of banks and market participants is conducted before each FOMC meeting to give officials a sense of how their views align with the financial sector, on which the central bank relies to transmit changes in monetary policy to the economy as a whole.
On Wednesday, Fed officials released the minutes from July’s FOMC meeting, which showed some division over the need for the latest interest rate hike. The minutes also show uncertainty about the need for further action now that inflationary pressures are showing signs of easing. That said, the authorities remain concerned about inflation and seem ready to act again if they deem it necessary. (Reporting by Michael S. Derby; Writing by Lisa Shumaker)
2023-08-17 20:18:09
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