The US Federal Reserve has raised the benchmark bank rate seven times through 2022, leaving many to question when the central bank will stop or reverse course. The Fed has stated that it aims to reduce inflation to the 2% target, and increases in the federal funds rate will also move towards this target. However, US macroeconomist and Fed watcher Zoltan Pozsar predicts that the central bank will resume quantitative easing (QE) in the summer. Bill Baruch, CEO of futures and commodities brokerage firm Blue Line Futures, expects the Fed to hold off on rate hikes until February.
Experts are mulling over the possibility of a halt to interest rate hikes and a resumption of quantitative easing
US inflation rose significantly last year but has since slowed. After the central bank’s seven rate hikes, investors and analysts expect the Fed to change course this year. In an interview with Kitco News, Blue Line Futures President Bill Baruch told Kitco host and producer David Lin that the US Federal Reserve will end monetary tightening in February. Baruch pointed to lower inflation and cited manufacturing data as a factor in his forecast.
“I think there’s a good chance we won’t see the Fed hike at all in February,” Baruch told Lin. “We could see something from them in the first week of February that will surprise the markets.” However, Baruch emphasized that markets will be “volatile” but will also see a strong rally. Baruch said rate hikes were “aggressive” and noted that “there are signs that the economy is poised to slow in 2021.” Baruch added:
But with the Fed raising those rates immediately, that’s what brought this market down.
The Repo Guru predicts the Federal Reserve will resume quantitative easing under the ‘Veil’ of Yield Curve Control this summer.
There is some uncertainty among analysts about whether the Federal Reserve will choose to raise the federal funds rate or pivot. Bill English, a professor of finance at the Yale School of Management, told bankrate.com that it is difficult to be certain about the Federal Reserve’s plans for a rate hike in 2023.
“It’s not hard to imagine scenarios where they raise rates by a fair amount next year,” English said. “If the economy really slows down and inflation falls too low, it’s also possible that they will cut rates further.” It is difficult to be confident in your worldview. The best thing you can do is balance the risks.”
US macroeconomist and Fed watcher Zoltan Pozsar, for his part, thinks the Fed will resume quantitative easing (QE) again in the summer. According to Pozsar, the Fed will not turn around for a while and Treasuries will remain under pressure. In a recent zerohedge.com article, a macroeconomist insists the Fed’s ‘summer of QE’ will be under the “veil” of yield curve controls.
Pozsar believes this will happen “by the end of 2023 to control the trading of US Treasuries against OIS”. Citing Pozsar’s forecast, zerohedge.com’s Tyler Durden explains that this would be like a “kingdom” situation and that the expected introduction of QE would occur amid dysfunction in the Treasury market.
What do you think about the Fed’s actions in 2023? Do you expect more rate hikes or do you expect the Fed to turn around? Let us know what you think about this topic in the comments section below.
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