Foreign exchange spreads tighten as primary dealers express concerns about 2023 recession.

Foreign exchange, crypto currency rates as of 11:35 pm 2 January 2023

Currency PairBroker BidBroker SellSpread
Source: OANDA   

Federal Reserve monetary policy tools as of 11:39 pm 2 January 2023

Policy ToolRate
Overnight Reverse Repurchase4.30
Effective Federal Funds Rate4.33
Interest on Reserve Balances4.40
Discount Window4.50
Prime Rate7.50
Source: Federal Reserve Board, Federal Reserve Bank of New York 

According to a survey of primary dealers conducted by the Federal Reserve Bank of New York for November 2022, a median proportion of primary dealers expect the federal funds rate to be approximately 4.625% after the next Federal Open Market Committee meeting.  The meeting is scheduled for December 31-February 1, 2023.

The current fed funds target range is 4.25% to 4.50%.  The current effective fed funds rate is 4.33%.

According to the survey, approximately 60% of primary dealers expect the fed funds rate to fall between 4.26% and 5.25% by the end of 2023.  A significant number of primary dealers expect increases in the fed funds rate to be driven by inflationary pressures.

Media outlet Mint reported today that most primary dealers expect a recession in 2023 with at least two of the 26 dealers surveyed expecting a recession in 2024.  Among the causal factors are the spending down of pandemic savings by consumers, a decline in the housing market, and a tightening of lending standards among banks.

The Board of Governors of the Federal Reserve System is scheduled to release data on its selected interest rates and foreign exchange at 4:15 pm, 3 January 2023.  

Alton Drew

2 January 2023

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