Risk markets rebounded strongly last week after the Federal Reserve (Fed) followed through on its well-telegraphed rate hike. During his post-meeting press conference, Fed Chair Jerome Powell expressed optimism that the economy was well positioned to withstand additional tightening. Despite Powell’s confidence that the economy was strong enough to not only “withstand but certainly flourish, as well, in the face of less accommodative monetary policy,” economic forecasts among Fed participants last week told a different story. The median projections for economic growth and inflation this year are both moving in the wrong direction — inflation increasing from 2.6% to 4.3% and gross domestic product (GDP) growth declining from 4.0% to 2.8%.
With the Atlanta Fed’s first-quarter GDPNow estimate running at 1.3%, while the war in Ukraine and new China lockdowns are likely to keep near-term inflation pressures elevated, the Fed is likely to face even more difficult choices ahead about the pace of monetary policy tightening.
This week’s economic calendar is highlighted by new reports on the state of the housing market and the U.S. consumer. New home sales will be released Wednesday and the University of Michigan’s Consumer Sentiment Index — which fell to a 10-year low in February — will be announced Friday.
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