UBS Chief’s $16 Million Pay Draws Finance Minister’s Concern

The manager turned first to a review of developments in financial markets over the intermeeting period. U.S. financial conditions had eased modestly since the January FOMC meeting, with higher equity prices more than offsetting increases in interest rates. Nominal Treasury yields had risen over the intermeeting period. At shorter maturities, most of the increase was attributable to a rise in inflation compensation, prompted by indications that the decline in inflation was proceeding somewhat more slowly than markets in recent months had been expecting. In contrast, at longer maturities, much of the increase in Treasury yields was due to a rise in real rates, reflecting solid labor market readings and stronger-than-expected data on economic activity. The manager turned next to policy rate expectations. An estimate of the expected federal funds rate path derived from futures prices shifted up significantly over the intermeeting period. The modal federal funds rate path implied by options prices had also risen, but by substantially less than the futures-implied path. The move up in the futures-implied path reflected in part some shift in expectations toward policy rate cuts beginning later in the year, and cumulating to a smaller rate reduction in 2024, than previously assessed. Investors also appeared to have considerably lowered the perceived probability of more substantial rate cuts than in their baseline expectations. This lowering was evident in significantly more concentrated probability distributions for the federal funds rate over coming post: FOMC Minutes: Fed Prepares Slower Pace of Treasury Runoff 'Fairly Soon' FOMC Minutes: Recent Inflation Numbers 'Disappointing' to Fed Officials post: Fed Minutes: Participants Generally Noted Uncertainty About Persistence of High Inflation Fed Minutes: Participants Noted Disinflation Process Was Continuing on a Path Generally Expected to Be Somewhat Uneven post: Fed Minutes: Participants Generally Noted Recent Data Had Not ‘Increased Confidence’ That Inflation Was Moving Sustainably Down to 2% post: FOMC Minutes: Many Officials Saw Financial Pressures Building on Low-Income Households FOMC Minutes: Officials Saw Economic Growth Slowing from 2023 Pace