The Federal Reserve has raised interest rates seven times throughout 2022, leading many to question when the central bank will stop or change course. The Fed has said it aims to reduce inflation to its 2% target, and increases in the federal funds rate are intended to get closer to that goal. However, Zoltan Pozsar, a US macroeconomist and Fed watcher, predicts that the central bank will begin quantitative easing (QE) again by the summer. Bill Baruch, an executive at Blue Line Futures, a futures and commodities brokerage firm, believes...
The Federal Reserve has raised interest rates seven times throughout 2022, leading many to question when the central bank will stop or change course. The Fed has said it aims to reduce inflation to its 2% target, and increases in the federal funds rate are intended to get closer to that goal. However, Zoltan Pozsar, a US macroeconomist and Fed watcher, predicts that the central bank will begin quantitative easing (QE) again by the summer. Bill Baruch, an executive at Blue Line Futures, a futures and commodities brokerage firm, expects the Fed to halt rate hikes by February.
Inflation in the US rose significantly last year but has slowed since then. After seven interest rate hikes by the central bank, investors and analysts are expecting the Fed to change course this year. In an interview with Kitco News, Bill Baruch, President of Blue Line Futures, said told Kitco host and producer David Lin said the Federal Reserve will likely halt monetary tightening in February. Baruch pointed to the decline in 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 that would surprise the markets in the first week of February.” However, Baruch emphasized that markets will be “volatile” but will also see a strong rally. Baruch explained that rate hikes “were aggressive,” and he noted that “there were signs in 2021 that the economy was poised to slow.” Baruch added:
But since the Fed raised these interest rates to the limit, that was the reason for this market collapse.
There is some uncertainty among analysts about whether the Federal Reserve will raise the federal funds rate or change its approach. Bill English, finance professor at Yale School of Management, explained told bankrate.com that it is difficult to be sure about the Federal Reserve's plans for rate hikes in 2023.
“It’s not hard to imagine scenarios where they raise rates significantly next year,” English said. "It's also possible that they end up cutting rates more if the economy really slows and inflation falls sharply. It's hard to be sure of its prospects. The best thing you can do is weigh the risks."
For his part, US macroeconomist and Fed watcher Zoltan Pozsar expects the Fed to resume quantitative easing (QE) by the summer. According to Pozsar, the Fed won't move for a while and Treasuries will come under pressure. In a recent zerohedge.com article, The macroeconomist insists the Fed's 'QE summer' will take place under the 'guise' of yield curve controls.
Pozsar believes this will happen by “the end of 2023 to control where US Treasuries trade against OIS.” Citing Pozsar's prediction, Tyler Durden of zerohedge.com explains that it will be like a "checkmate-like" situation and the impending implementation of QE will come within the context of dysfunction in the Treasury market.
What do you think about the Fed's moves in 2023? Do you expect further interest rate increases or do you expect the Fed to pivot? Let us know your thoughts on this topic in the comments section below.
Photo credit: Shutterstock, Pixabay, WikiCommons
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