Fed hikes +25 bps, signals more

<p>Kia ora,</p><p>Welcome to Thursday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.</p><p>I'm David Chaston and this is the international edition from Interest.co.nz.</p><p>And today we lead with news all dominated by the US Fed decision which is playing out in real time as you hear this.</p><p>They have <a href="the%20Committee%20will%20continue%20reducing%20its%20holdings%20of%20Treasury%20securities%20and%20agency%20debt%20and%20agency%20mortgage-backed%20securities,%20as%20described%20in%20its%20previously%20announced%20plans.%20The%20Committee%20is%20strongly%20committed%20to%20returning%20inflation%20to%20its%202%20percent%20objective." target="_blank"><strong>raised their policy rate by +25 bps to 5.0%</strong></a> today as widely expected.</p><p>But the outlook was more hawkish than expected. "The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time." and "the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective."</p><p>Their official note hardly noted the banking crisis. It is essentially all about fighting inflation. That means the upcoming Powell press conference will be focused on that.</p><p>Markets reacted with the expectation that bond markets will be taking more pain and benchmark yields eased slightly. Equities jumped on the modest rate hike. The USD fell, but only relatively modestly.</p><p>Of course these are just initial reactions. After the backgrounding from Powell at 7:30 am NZT there could well be more dramatic reactions.</p><p>Meanwhile, the recovery of the long-dormant US housing market took another step last week. <a href="https://www.mba.org/news-and-research/newsroom/news/2023/03/22/mortga