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US | 75bp hike a done deal; all eyes on hints of a potential downshift in tightening pace

Published on Tuesday, November 1, 2022

US | 75bp hike a done deal; all eyes on hints of a potential downshift in tightening pace

We think that clear signs of a possible smaller hike in December are still unlikely, not only because it will depend on upcoming data, but also considering that a wide consensus within the FOMC on the next steps seems still unlikely.

Key points

  • Key points:
  • The Fed is set to raise the fed funds rate by 75 bps to a 3.75-4.00% range on Wednesday -the fourth straight hike of that size.
  • All eyes will be on hints of what the Fed will be looking for in the data to slow the pace of rate hikes and then end the tightening cycle.
  • The job creation pace has slowed and job openings have fallen. Yet, labor demand has to fall much further to catch up with a still constrained supply. This sets a backdrop for wage stickiness.
  • Lower goods inflation is a welcome development, but for the underlying inflation trend, the rising core services inflation is more relevant as it points to short-term core inflation stickiness at uncomfortable high levels.
  • With inflation set to remain quite high in the short term, and underlying inflation pointing to stickiness ahead, what will drive the Fed to slow the hiking cycle will be signals that the labor market is on a pace of rebalancing.

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