US | Fed delivers hike one, signals one more to come

The FOMC unanimously raised the fed funds rate by 25 bps to 3.75-4.00%, underscoring its commitment to policy credibility. We expect only one additional 25bp increase, most likely in December. We then expect the Fed to remain on hold through 2027.

Key points

• Key points:
• The Fed effectively acknowledged that elevated inflation is no longer only a temporary supply-driven issue, but one sustained by “resilient” domestic spending.
• The updated SEP delivered only modest changes to the economic outlook, but the dot plot depicted a considerably more hawkish policy-rate path.
• 16 out 18 FOMC participants project at least one more hike this year; looking out to 2027, views split with eight participants favoring a third hike.
• Warsh’s remarks that today’s action “starts to show we’re serious about this” suggest a low threshold to tighten further if inflation remains sticky.
• A faster decline in inflation than participants currently project should allow policy easing to begin in 2028, bringing rates back toward neutral well ahead of the dots timeline.

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