March FOMC and Powell Speech Simplified: 1 More Hike, No Cuts in 2023

March FOMC and Powell Speech Simplified: 1 More Hike, No Cuts in 2023

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The FOMC (or Federal Open Market Committee) is responsible for setting interest rates and conducting monetary policy in America. 

The FOMC (Federal Open Market Committee) meeting is usually rife with dense monetary policy rhetoric. Each word is carefully chosen ahead of time, with specific intent, and for most casual viewers, it can be a tough storyline to follow. It’s almost like financial lingo was crafted to keep normal people out of the conversation. Almost.

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Luckily, we parsed through the data to boil down the entire monetary policy update, including Fed Chair Jerome Powell’s follow-up speech, into a few simple-to-understand bullet points.

5 Key Points from the March FOMC

The FOMC release was largely in-line with expectations. One more rate hike this year of 25 basis points, upcoming rate cuts at some point, and an acknowledgment of the ongoing banking crisis.

Upon this 2PM EST update, the market began cruising higher. However, if you’ve ever traded an FOMC release, you know the real event doesn’t start until 2:30PM EST, when Fed Chair Jerome Powell takes the stage for his speech and follow-up Q&A session. 

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3 Key Points from Powell’s March FOMC Speech

Much of Powell’s speech reiterated the FOMC news — for instance, most (but not all) Fed officials agree that one more hike will be necessary to tame inflation. However, Powell’s commentary shed some light on certain lines in the FOMC release. 

An example: That acknowledgment of the banking crisis in the FOMC release. 

The collapse of SVB and the issues with other regional banks was a key topic of discussion during the Q&A portion of Powell’s address. While Powell assured his audience that “the Fed has tools to protect depositors […] and we’re prepared to use them,” He shied away from implying that the banking crisis would cause the Fed to steer off course. 

In fact, Powell said that the banking crisis could cause some credit tightening, which would essentially act like the rate hikes that the Fed currently wields. In other words: Powell and the Fed aren’t going to worry about banking defaults — at least, not right now.

One more key specification from Powell’s speech: Let’s talk about cuts. While the market had previously been pricing in rate cuts at each of the upcoming meetings, Powell all-but-assured the market that cuts are unlikely to come in 2023. Instead, Powell and the Fed expect to hold rates in place (remember, “higher for longer”) for the remainder of 2023 before they consider cutting.

By the end of Powell’s speech, the market had given back all of its gains, with all three indices falling into negative territory. However, it stands to be seen whether this was because of Powell’s comments about rate cuts, or about Janet Yellen’s comments about bank deposit insurance, which ran contrary to the Fed’s message that “depositors should assume their deposits are safe.” 

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