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Published on Thursday, September 22, 2022

US | Hawkish 75bp fed funds rate hike signals a higher peak for rates

The updated “dot plot” reinforces the Fed’s “higher rates for longer” approach to bring inflation down to 2%. Another 75bp hike is now more likely than not in November and rates will likely go higher than previously thought.

Key points

  • Key points:
  • The Fed delivered the third consecutive 75bp hike, taking rates to 3.0-3.25% as widely expected following the stronger-than-expected August core CPI print.
  • FOMC participants reinforced their hawkish tone from recent weeks through the updated Summary of Economic Projections (SEP) and the accompanying “dot plot”.
  • Continued relative optimism on activity and the labor market contrasts with the main message sent today: rates still need to go sharply up “to put meaningful downward pressure on inflation”.
  • We now expect the Fed to continue to front load rate hikes and add 125bp worth of additional tightening by December, lifting the target range to 4.25%-4.50%.
  • As of now, we anticipate that the Fed will keep rates unchanged at 4.75% through most of 2023 following a 25bp hike in January.

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