Watch PCE for Signs of FOMC Rate Hikes: BAC, MS, GS

March 30, 2023, 11:33 am ET, BY Thomas H. Kee Jr- Editor, Stock Traders Daily| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

The FOMC is not done with their rate hiking objective, but could they be done with hiking rates?

Bank of America (NYSE: BAC), Morgan Stanley (NYSE: MS), Goldman Sachs (NYSE: GS), and others have vocalized concern about what appears to be a premature expectation by the markets that the FOMC is done hiking rates.

This is acutely important given the PCE data that will come tomorrow.

Our observations leading up to the most recent rate hike by the FOMC was that they were set to hike one more time after that before pausing to see how effective the rate hikes that have already come have been.

After the FOMC decision and the subsequent press conference it became clear that the FOMC believed that the banking system would tighten its lending standards and effectively accomplish the same thing as an additional rate hike, or maybe two.

Therefore, the likelihood of an additional rate hike by the FOMC was diminished.  Their objective and intention has not been satisfied, but they saw another influence from the banking system that could help them achieve those goals, if lending standards tightened.

However, and importantly, the FOMC has also said that a premature pause in hiking rates has historically then a bad idea, and a premature pause runs the risk of allowing inflation to get out of control.  The FOMC has clearly said that it would prefer to go too far than to stop too soon because inflation is bad for everyone.  They are also not sure if the banking system will tighten or not.

A couple weeks ago, when banking concerns were peaking, tightening lending standards looked likely, but today it appears far less certain.  The banking industry may not help as much as the FOMC expected at their last meeting.

Furthermore, the FOMC has said that's the job market must weaken one way or the other for their objective to be accomplished, and thus far that has not happened either.

The objective of the FOMC has not been satisfied, and they are hopeful that the banking system will do some of the work for them, but with the PCE data on the horizon, the most important inflation data to the FOMC, a lingering concern exists.

Specifically, if this data is hot the FOMC will be much less willing to wait and see if the banking industry satisfies the additional slated rate hike(s) that were on the table.  Pay attention to tomorrow's PCE data closely because it will be a tell.  If the data is hot the FOMC will likely hike rates again regardless of what they believe the banking industry might do.

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