The FOMC always seems to take center stage in the financial markets these days, and will certainly do so on Wednesday, when the next two-day meeting of the FOMC will end around noon. It will be followed by the release of the FOMC's statement at 2:00 pm and Fed Chair Powell's presser at 2:30 pm. He should be less hawkish than he was during his congressional testimony on March 7. He will have to address the impact of the banking crisis on monetary policy and the overall economy.
The FOMC is likely to vote for a 25bps hike in the federal funds rate to 4.75%-5.00%. Powell should acknowledge that the banking crisis suggests that the rate is restrictive enough to slow the economy and moderate inflation. So additional rate hikes may not be warranted. A decision of no rate hike is a possibility, although it would be deterred by the consideration that it might heighten the public's fears that the banking situation is worse than widely realized.
We will be focusing on the FOMC's latest quarterly Summary of Economic Projections (SEP). It is also likely to be a lot less hawkish than it might have been without a banking crisis. Indeed, we wouldn't be surprised to see the same projections for most of the economic variables as in the December SEP including a terminal federal funds rate of 5.1%. The projections for real GDP and unemployment are likely to suggest a soft landing rather than a hard landing, as they did in the previous SEP. The PCED inflation rate projections should remain close to 3.1% this year, 2.5% next year, and 2.0% in 2025. (See our FOMC Summary of Economic Projections.)
Three of the week's economic indicators are housing-related ones. February's mild winter weather during might have given a lift to them.