**Fed Hikes 25bps As Expected, Signals 'Hawkish Pause'; Warns Of 'Tighter Credit Standards'**
Fed Hikes 25bps As Expected, Signals 'Hawkish Pause'; Warns Of 'Tighter Credit Standards'
**Tl:dr;** Fed raises rates by 25 bps as expected.
Policy statement softens the rate guidance in a way **consistent with past pauses** and The Fed **deletes reference to "some additional policy firming may be appropriate."**
A clear hat-tip to the banking crisis:
> "Recent development are likely to result in tighter credit conditions" removed and replaced with "Tighter credit conditions"
The decision was **unanimous**.
As WSJ Fed Whisperer Nick Timiraos notes: _"The FOMC statement **used language broadly similar to how officials concluded their interest-rate increases in 2006**, with no explicit promise of a pause by retaining a bias to tighten."_
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**This is clearly more of a hawkish pause since it doesn't suggest whether 'policy easing' may be appropriate...**
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**...but then again, if Powell had gone that far, markets would have panicked over "what does he know"?**
What happens next?
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Since March 22 (the last FOMC statement, which included the dot-plot and economic projections), markets have been 'just a little bit turbo' but amid all that vol, bonds and stocks are modestly higher while the dollar has tumbled and alternative currencies (bitcoin and gold) have outperformed...
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_Source: Bloomberg_
However, **The Fed’s preferred recession rate-spread indicator** (3-month/18-month forward) is now flashing red **implying a 94% probability of a recession within the next year**
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Interestingly, the market's expected rate trajectory of The Fed has shifted somewhat hawkishly, mainly due to the plunge in rate-hike odds that occurred on the day of the FOMC meeting...
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_Source: Bloomberg_
Rate-hike expectations have drifted higher since the last FOMC...
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_Source: Bloomberg_
**Today's 25bp hike is a lock from the market's perspective,** but what is really the focus today is any hints that The Fed is done (and the market for now, is convinced they will be with **just 5% odds of a 25bp hike in June**).
But, **the market remains massively dovishly divergent from The Fed**'s dotplot rate expectations for this year and next...
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As we noted earlier,a single sentence in the FOMC statement (https://www.zerohedge.com/markets/single-sentence-will-define-everything-heres-what-fed-will-say-today) will change everything everything today and all eyes will also be on whether there are any dissents.
- Federal Open Market Committee raises benchmark rate by 25 basis points, as forecast, to target range of 5%-5.25%
This hike moves Real Rates positive for the first time since 2019...
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- **FOMC omits prior language saying “some additional policy firming” may be warranted, suggesting Fed could pause at the next meeting**
- FOMC will take into account various factors “in determining the extent to which additional policy firming may be appropriate”
**And the vote was unanimous.**
Additionally, The Fed highlights the impact of the banking crisis:
> **_FO…