Quarterly Letter to Members – March 2023
The Fed followed through with a 25bps rate hike, one more hike…maybe, Powell briefly addressed recent banking sector stress.
The Federal Reserve Open Market Committee raised the benchmark federal funds rate March 22nd by a 0.25%, setting the new target range at 4.75% to 5.00%. This marks the highest federal funds rate range since late 2007 and the ninth consecutive rate increase by The Fed in the last year to reduce inflation and bring it close to its 2% objective.
The Committee noted that the “banking system is sound and resilient,” adding that the recent developments “are likely to result in tighter credit conditions for households and businesses,” which could weigh on economic activity, hiring and inflation levels.
“The extent of these effects is uncertain. The Committee remains highly attentive to inflation risks,” the Committee included in today’s statement.
Although the Fed’s balance sheet has experienced expansion over the past week, Chair Powell commented in his press conference that they will remain on pace with balance sheet reduction.
The Committee presented modest changes to the Summary of Economic Projections (“SEP”). The federal funds rate is now expected to be 4.3% in 2024, up from the previous December estimate of 4.1%. Participants continue to forecast the policy rate at 3.1% and the longer run rate at 2.5%, both remain unchanged from December.
The Fed revised its GDP projections downward, lowering the growth rate from 0.5% to 0.4% in 2023 and adjusted their real GDP forecast for 2024 from 1.6% to 1.2%. Their 2025 growth rate was revised upward from 1.8% to 1.9%. The unemployment rate was revised upward to 4.6% in 2025 from 4.5% in the December SEP.
On the inflation front, the Personal Consumption Expenditures (“PCE”) price index forecast was increased to 3.3% from 3.1% in the December SEP. PCE inflation is expected to ease to 2.5% in 2024 and 2.1% in 2025. 2023 Core PCE inflation was also revised slightly higher to 3.6% and 2.6% in 2024 but expected to slow in 2025 to 2.1%.
During his press conference, Chair Powell commented that, “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% over time.” He also added, “In determining the extent of future increases in the target range, the Committee will take into account the cumulative tightening monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”
Chair Powell fielded questions regarding the current financial stresses in the banking system very concisely. He commented that “it’s still too early to tell how stress in the banking sector will affect credit conditions,” and that if stress in the banking sector has a larger impact, then “monetary policy will have less to do.”
It appears the macro narrative has quickly shifted, and the market now seems to have a Fed pivot in hand. During his prepared remarks, the Chair highlighted that the forward language moderates the tone for future tightening from “will be appropriate” to “may be appropriate.” Moreover, the observation was made early on during the press conference that a pause was considered by the Committee which is a clear dovish skew and a potential precursor for one at the May meeting. If the Fed were forced to decide on May’s move today, it would be a pause. Fortunately for the FOMC the next six weeks will offer greater clarity on the severity of the banking sector crisis.
As for the markets, Fed days are always quirky. The rates market saw the FOMC announcement as a dovish hike with the front end of the U.S. rates curve rallying as 2-yr rates declined as far as 3.91%. The 10-yr rallied as well, although to a much lesser extent. Assuming this is the beginning of the Fed pivot, it will also mark the commencement of the yield curve steepening. As the market continues to digest the Fed’s actions, it might be worth contemplating the degree to future shifts in the balance sheet might eventually come into play.
Any opinions, projections or recommendations in this report are subject to change without notice and are not intended as individual investment advice. The information in this letter is based on data obtained from recognized sources and is believed to be reliable. Past performance is not indicative of future results. This material is for AMLIP participants and administrators ONLY and is NOT for public distribution.

INVESTMENTS ARE: NOT FDIC INSURED. NOT BANK GUARANTEED. MAY LOSE VALUE. NOT A DEPOSIT. NOT INSURED BY ANY FEDERAL OR STATE GOVERNMENT AGENCY

Portfolio Matters

The month opened with a $795,915,323 balance and closed with a balance of $783,181,480. The seven-day effective yield ended the month at 4.65%. The monthly seven-day average effective yield for the month was 4.51%. Average maturity ended the month at 10 days.

At the end of the month, the AMLIP portfolio had 35% of its portfolio assets allocated to overnight investments/cash, corporate securities made up 1% of the assets, commercial paper represented 22%, CDs represented 5%, and Treasury & Agency represented 37%.

 Money Market Comparison
On March 27, 2022, the seven-day compound yield of all taxable money market funds as reported by iMoneyNet, Inc. was 4.51%, the Tier 1 Institutional Compound Yield was 4.78% and the Pool’s 7-day effective rate of 4.58% on the same day

  AMLIP Board Members
   Terry Eubank – President
    City of Kenai
   Cheyenne Heindel – Vice President
     Matanuska-Susitna Borough
   Jody Tow – Treasurer
    Petersburg Borough
   Nils Andreassen – Executive Director
    Alaska Municipal League
    Mason Villarma
     City & Borough of Wrangell
    Kris Erchinger
     City of Whittier
    Melissa Haley
     City and Borough of Sitka
    Angie Flick
     City & Borough of Juneau

  AMLIP Membership
Adak, City of Dillingham, City of Nome, City of
Akutan, City of Eagle, City of North Pole, City of
Alaska Association of Eek, City of Northwest Arctic Borough
 Municipal Clerks Egegik, City of Nulato, City of
Alaska Government Finance Elim, City of Old Harbor, City of
 Officers Association (AGFOA) Fairbanks North Star Borough Palmer, City of
Alaska Industrial Development Fairbanks, City of Pelican City School District
 Export Authority (AIDEA) False Pass, City of Pelican, City of
Alaska Municipal League Fort Yukon, City of Petersburg, City of
Alaska Municipal Galena, City of Pilot Station, City of
 Management Association Gustavus, City of Pribilof School District
Aleknagik, City of Haines Borough Quinhagak, City of
Aleutians East Borough Homer, City of Sand Point, City of
AML/JIA Hoonah, City of Selawik, City of
Anchorage Community Huslia, City of Seldovia,City of
 Development Authority Juneau, City and Borough of Seward, City of
Angoon, City of Kake City School District Sitka, City and Borough of
Annette Islands School District Kenai Peninsula Borough Soldotna, City of
Atka, City of Kenai, City of Southwest Alaska Municipal
Atqasuk, City of Ketchikan Gateway Borough Conference
Barrow, City of King Cove, City of St. Paul, City of
Bethel, City of Kodiak Island Borough Tenakee Springs, City of
Brevig Mission, City of Kodiak, City of Toksook Bay
Bristol Bay, Borough of Kotzebue, City of Unalakleet, City of
Chevak, City of Koyuk, City of Unalaska, City of
Chuathbaluk, City of Manokotak, City of Upper Kalskag
Cold Bay, City of Marshall, City of Wasilla, City of
Cordova, City of Matanuska-Susitna Borough Whittier, City of
Delta Junction, City of McGrath, City of Wrangell, City and Borough of
Denali Borough Mekoryuk, City of Yakutat, City and Borough of
Mekoryuk, Village of
New Stuyahok, City of