US | The Fed will deliver a second 75 bps hike

Summary

The Fed will take the policy rate to its longer-run neutral level. Although the pathway to achieve a soft landing has evolved from “likely” to “plausible”, the tightening cycle still has legs.

Key points

• Key points:
• We expect the Fed to deliver a 75 bps rate hike tomorrow, wrapping up its early signaled plan outlined several months ago to “expeditiously” take the fed funds rate to its longer-run neutral level.
• This move will place the policy rate in the 2.25-2.50% target range, a level that is consistent with the median FOMC projection of the neutral fed funds rate.
• A series of additional hikes is planned beyond this meeting, but with recession risks on the upside, we expect the Fed to signal that it will slow the pace of tightening in the coming meetings.
• We expect the Fed to give some signals on its plan to hike beyond the long-run neutral level in the following months, which will likely imply shifting down to a slower pace of tightening.
• The increasing likelihood of an upcoming recession will start to weigh more on the public debate, but we think that the Fed is not likely to pull back its planned series of additional hikes in the short term.

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