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The Fed could hike rates another 125bp by the end of 2022


Reaction to the FOMC meeting

Even looking to the end of this year, Fed members got another 125 basis points of rate hikes…

As we noticed at the start of the FOMC meeting, I told everyone that I was skeptical that Jerome Powell and company had gone for a 100 basis point rate full house ( 1.00%), and as we just saw, this skepticism was well placed: the Fed chose to cut interest rates by 75 basis points (0.75%) in the 3.00 at 3.25%, as generally expected.

Despite the lack of big surprises, there is still much to ruminate on from the FOMC meeting through the monetary policy statement, summary of economic projections (SEP) and Jerome Powell’s press conference, which drew to a close. as we go to press.

Monetary policy statement

Overall, this meeting’s monetary policy statement saw the fewest changes from the previous month’s statement in recent memory. The only ungrammatical/mark-to-market change was an acknowledgment that recent guidance for spending and production “indicates modest growth” (contra “has subsided” last month).

Needless to say, this minor tweak is now a great walking motorist, but it should be said that he chose one of the numbers for the statement: the whole sign of an upcoming “pivot” or the name of a break from the central bank of america.

Luckily, he’s already into the interesting developments of the accompanying summary of economic projections, and compares the infamous “point graph” of interest rate forecasts…

Summary of Economic Projections

It’s already under a name of major economic consumer and central bank interest rate updates:

  • Projected average GDP growth will be revised downwards in 2022 (1.7% -> 0.2%), 2023 (1.7% -> 1.2%) and 2024 (1.98% -> 1, 7%).
  • The average tax rate is expected to be revised to 0.1%, 0.5% and 0.3% in 2022, 2023 and 2024.
  • The projected median PCE and Core PCE inflation rate has also been revised upwards for 2022 and 2023.

Overall, the Fed’s Consumer Economics changes suggest more lean growth, higher unemployment and higher-than-expected inflation, an ugly but unexpected update from the Central Bank’s Consumer Economics over the past two last years.

Source: Federal Reserve

Likely in response to higher inflation expectations, Fed interest rate expectations will also be revised upwards across the board in 2022 (3.4% -> 4.4%), 2023 (3 .8% -> 4.6%) and 2024 (3.4% -> 3.9%). As we noted with the monetary policy statement above, the Fed’s own interest rates show no sign of a pivot to rate cuts through 2024, signaling the Bank’s conviction center for combating price pressures, whatever the costs.

Even looking only at the end of this year, Fed members previously received 125 basis points of rate hikes, more than 75 basis points in November and 50 basis points in December.

President Powell’s press conference

Chairman Powell is still speaking as we go to press, but with most of his comments behind us, Fed Chairman Powell has proven to be slightly less hawkish than the central bank’s statement and economic discounters. Highlights From Powell’s Press Conference Follow [c’est moi qui souligne] :

  • THE FED WANTS A RETURN TO “SUFFICIENTLY RESTRICTIVE” RATES
  • INCREASE RATE ACCORDING TO ENTRY DATA
  • HISTORICAL RECORD PRECAUTIONS AGAINST PREMATURE RATE CUTS
  • COULD SEE A SOFTENING OF LABOR MARKET CONDITIONS
  • THERE WILL VERY LIKELY BE A SLOWDOWN IN THE LABOR MARKET
  • MAY SLOWDOWN THE PACE OF HIKES TO A CERTAIN POINT TO ASSESS THE EFFECTS
  • POWELL CITES FOMC SPLIT BETWEEN 100 BPS AND 125 BPS FOR THE REST OF THE YEAR
  • AMOUNT OF PAIN DEPENDS ON 2% INFLATION TARGET TIMEFRAME
  • THE HOUSING MARKET MAY NEED TO GO THROUGH A CORRECTION

While early comments on the likely labor market assembly imply that the Fed is ready to step into the recessionary US economy if necessary, their later comments on the potential slowing pace of rate hikes and the possibility of “Only “100 basis points more on interest rate increases this year have toned down his hawkish tone a bit.

Market reaction

Seemingly mirroring every other Fed meeting so far this year, I went to first react to the seemingly hawkish statement and economic discounts (stocks and other risk assets down, US dollar and yields up) before fully investing that decision at Fed Chairman Powell’s press conference.

Overall though, on the impression that the President backtracked on the statement less than he has recently, and at the end of the day the Fed was more hawkish, longer, than expected when she woke up this morning, so we received to see a continuation of recent trends (rising yields and American dollardecline in equities and risk assets) as traders digest the meeting while waiting for the rest of the week.

By Matt Weller, CFA, CMT, FOREX.com » Official Site

The Fed could hike rates another 125bp by the end of 2022

Disclaimer: The information and opinions contained in the report are provided for general information only and do not constitute an offer or a solicitation concerning the sale or sale of foreign exchange contracts or CFDs. Although the information contained in this document comes from sources believed to be reliable, the author does not guarantee its accuracy and is not exhaustive, and assumes no responsibility for any direct, indirect or consequential damages that may result that he trusts such information.




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