Rabobank Predicts FOMC Will Maintain Interest Rates Amidst Nominal Hike

03/24/2023 18:27 • Daily Digest • 128 views

Rabobank: The Federal Reserve may raise interest rates by 25 basis points in May and keep them unchanged

Outline

I. Introduction
A. Background Information on Federal Open Market Committee (FOMC)
B. Overview of the Situation
II. Analysis of FOMC Decision
A. FOMC’s Unanimous Decision to Increase Federal Funds Interest Rate Target Range
B. Rabobank Economists’ Rejection of their Expectations of a 25 Basis Point Interest Rate Hike in June
C. FOMC’s Plan to Maintain Interest Rates Unchanged for the Rest of the Year
III. Credit Tightening as Fed’s New Monetary Policy Tool
A. FOMC’s Expectation that Tightening Bank Credit will Complete the Rest of the Central Bank’s Anti Inflation Work
B. Lowering of the Forecast for the Target Range of the Federal Funds Interest Rate
C. Expectation that Only Another 25 Basis Points Will be Added this Year
IV. Rabobank’s Prediction
A. Firm Belief that FOMC will Not Turn this Year
V. Conclusion
A. Recap of Key Points
B. Final Thoughts
VI. FAQs
A. How does FOMC decide on interest rates?
B. What is the Federal Funds Interest Rate Target Range?
C. How does credit tightening help with anti-inflation efforts?

Article

According to reports, Rabobank believes that the Federal Open Market Committee (FOMC) unanimously decided yesterday to raise the federal funds interest rate target range by 25 basis points from 4.50-4.75% to 4.75-5.00%. While Rabobank economists rejected their expectations of a 25 basis point interest rate hike in June, they still believe that the Federal Reserve will maintain interest rates unchanged for the rest of the year.
The FOMC’s decision to increase the federal funds interest rate target range garnered unanimous support. This move came as no surprise, as the central bank has expressed its intention to gradually raise interest rates to address inflation concerns. However, Rabobank economists were previously skeptical of this move happening in June.
Despite this initial hesitance, Rabobank economists believe that the FOMC will not turn this year. The central bank is hesitant to raise interest rates too much, and it is expected that only another 25 basis points will be added this year. The FOMC expects that tightening bank credit will complete the rest of the central bank’s anti-inflation work. As Fed Chairman Powell noted in the Q&A session, credit tightening is the Fed’s new monetary policy tool.
Due to these expectations, Rabobank has lowered its forecast for the target range of the federal funds interest rate from 5.25-5.50% to 5.00-5.25%, with an expectation that only another 25 basis points will be added once.
In conclusion, while FOMC has decided to increase the federal funds interest rate target range, Rabobank predicts that they will maintain interest rates unchanged for the rest of the year. With credit tightening as the new monetary policy tool, the central bank is still determined to address inflation concerns in a gradual and cautious manner.

FAQs

Q: How does FOMC decide on interest rates?
A: FOMC evaluates economic and financial conditions and projections, including inflation, employment, and growth, and determines its interest rate decisions based on those assessments.
Q: What is the Federal Funds Interest Rate Target Range?
A: The Federal Funds Interest Rate Target Range is the interest rate set by FOMC at which banks lend and borrow overnight cash reserves from each other.
Q: How does credit tightening help with anti-inflation efforts?
A: Credit tightening involves the central bank reducing the availability of credit to limit borrowing and spending, which slows down economic growth and inflation. Thus, it can be an effective tool in controlling inflation.

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