US | The Fed signals multiple hikes in 2023 and suggests policy rate might peak above 5%

Summary

FOMC shifts down from 75bp hikes by raising the fed funds rate by 50 bps to a 4.25-4.50% target range, but signals a more hawkish outlook, keeping an eye on non-housing core services inflation for signals of labor market rebalancing.

Key points

• Key points:
• The fact that the Fed did not drop the “ongoing increases” language suggests that the Fed is planning on hiking rates multiple times (at least two) next year.
• The updated Summary of Economic Projections (SEP) outlined a somewhat weaker economic scenario aligned with the more hawkish projected policy stance.
• The median estimate for the fed funds rate by the end of 2023 was revised up to 5.1%. This suggests a hawkish outlook with 75bp worth of additional tightening to come.
• Chair Powell’s remarks following the decision were unequivocally hawkish: “[...] we have more work to do.”
• Today’s hawkish signs indicate that, although inflation is starting to show clear signs of easing, the Fed felt a strong need to reverse or avoid a further easing of financial conditions.

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