The jobs report should be pretty good (hiring intentions surveys remain strong and there are 11.4mn vacancies) while inflation is likely to remain elevated given food and energy prices – the YoY rate won't start to really drop on favourable base effects until late 1Q through 2Q 2023. Consequently, inflation is likely to be slow and sticky on its descent, thereby putting the onus on the Fed to weaken demand via higher interest rates.īetween now and the July FOMC meeting we only have one round of data. However, the geopolitical backdrop, Covid containment measures in Asia and the lack of worker supply in the US suggests this isn’t going to happen soon. To get inflation lower quickly we ideally need the supply side capacity of the economy to better balance with strong demand. We believe that the risks to the Fed’s rate hike projections are to the upside. The accompanying statement underscores the shift in the Fed view with the central bank "strongly committed" to getting inflation down to 2% target and being "highly attentive" to inflation risks.Īnother 75bp in July with rates ending the year at 3.5-3.75% Even the least hawkish FOMC members have the Fed funds rate ending this year above 3%. The dot plot of individual forecasts now predicts the year-end Fed funds rate at 3.4% versus 1.9% in March and 2023 at 3.8% (2.8% previous) with 2024 at 3.4% (2.8% previous) and long run at 2.5% versus 2.4%. The Fed’s new forecasts sees them signal that the pace of policy tightening will remain intense over the next few months. The Fed’s Quantitative Tightening plans remain unchanged. Only Esther George wanted to see 50bp today. Markets had been moving in the direction since the release of the May inflation data and the jump in longer-term inflation expectations reported by the University of Michigan, gathering momentum on reports the Fed was “likely” to consider more substantial policy options than the 50bp previously signaled.
After implementing the first 50bp hike in 22 years in May, the Fed has today followed up with the first 75bp increase since 1994 as the central banks tries to dampen inflation pressures with greater vigour.
0 kommentar(er)
