The Federal Reserve's See-sawing Balance of Risks

February 15, 2023 - 2 minutes 30 seconds
A balance scale on the desk of a businessperson

The recent series of major US economic events has left the markets spinning in circles, as the focus this year has turned to the end of the Federal Reserve's tightening cycle. Jan Groen, our Chief US Macro Strategist, joined TD Securities in the second half of 2022 from the Federal Reserve Bank of New York where he was an Economic Research Advisor. His knack for extracting clever and concise signals from a data-rich macroeconomic environment and mapping it clearly into implications for the US economy and markets was followed closely by market participants. Now with TD Securities, Jan's guidance around recent events continues to be supported by evolving market data.

Forecasting FOMC rate hikes

Following the Federal Reserve decision in February, when the Fed slowed the pace of hikes down to 25bps, Jan stuck with his call for the Fed to deliver two more 25bps rate hikes, in March and in May. However, while he had previously seen the risks as tilted towards further hikes beyond May, after Chair Powell failed to push back against a more dovish market view, he felt that the risks had become more balanced.

At the same time, even more than before, upcoming data releases could sway the balance of risks in either direction as the Chair deemphasized the December "dot plot" as a guide for the Fed's outlook. Markets took the decision as more unambiguously dovish though, focusing not only on the end of the Fed's hiking cycle, but how soon we might expect to see rate cuts.

New data supports the forecast

Just two days later, a blockbuster US payrolls report reaffirmed Jan's view that the Fed still has at least a couple more rate hikes to come and won't be thinking about rate cuts anytime soon. Although wage growth did ease up a bit, Jan noted that it's still above levels that would be consistent with the Fed's 2% inflation target, and that excess labour demand persists. So combined with the ISM services index jumping back into expansionary territory, Jan and the US team cannot foresee the Fed pausing before the May meeting.

There's more to come

Jan heads US economics research and analysis for TD Securities in New York, working closely with US macro strategist Oscar Muñoz. The team covers US and global macroeconomic trends, with a focus on formulating views on the Federal Reserve's rate setting policy, macro data forecasting, and quantifying underlying economic trends. Jan has been watching the relationship between wage and inflation trends particularly closely, and combined with Oscar's #1 ranking in Bloomberg for US monthly CPI forecasts, will have investors and colleagues leaning on Jan's team for their guidance around the upcoming turning point from the Fed.

Subscribing Clients can access full reports: February FOMC, US Payrolls Report and Wage Growth and Inflation Expectations on the TD Securities Market Alpha Portal


Portrait of Jan Groen


Chief U.S. Macro Strategist, TD Securities

Portrait of Jan Groen


Chief U.S. Macro Strategist, TD Securities

Portrait of Jan Groen


Chief U.S. Macro Strategist, TD Securities

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