Written by Sinad Karahimetovic
The Federal Reserve raised its key by 0.75 percentage points yesterday to signal a third consecutive rate hike of this size. Yesterday’s move pushed the benchmark price into a range of 3% to 3.25%.
More importantly, the Fed’s “dot chart” suggests a sharper tightening ahead with interest rates seen as high as 4.6% in 2023.
“Reducing inflation is likely to require a sustained period of growth below the trend,” Fed Chair Jerome Powell said. [mean] some relief from labor market conditions.”
“Restoring price stability is critical to paving the way for maximum employment and long-term price stability. We will continue to do so until we are confident we will get the job done.”
In response to the Federal Reserve’s statement and President Powell’s press conference, Treasury yields reached their highest level since October 2007. Understandably, US stocks fell sharply on the back of another rise in yields with the day closing 1.7% lower.
Here’s what top strategists have to say:
Jan Hatzius at Goldman Sachs: “We were expecting a nod towards a slower pace in November and are revising our expectations for rate hikes to 75 basis points in November, 50 basis points in December, and 25 basis points in February, for the peak funds rate of 4.5-4.75 % (versus 4-25% previously).
Andrew Hollenhurst of Citi: “We expected the Fed to send an optimistic message through the higher ‘points’ and we underlined the upside risk of Fed policy rates. However, the Fed was able to beat even our hawkish expectations… We add 25 basis points From cumulative rallies to our expectations we now expect a rise of 75 basis points in November, 50 basis points in December, and 25 basis points in February for a final rate of 4.5 to 4.75%.”
Michael Gaben, Bank of America: “We are reviewing our expectations upwards for the target range for the fed funds rate in the current tightening cycle. We now expect the Fed to raise its policy rate by 75 basis points in November and 50 basis points in December, followed by a rate hike of 25 basis points in February and March next year.”
Elaine Zentner at Morgan Stanley: “We believe persistent inflation will keep the Fed at its peak for most of next year, challenging the market’s assumption of an early start to cuts. Monetary policy is running with delays and the speed at which the Fed is moving poses a risk, but the Fed appears ready to take it.” The higher the Fed targets, the higher the risks of a recession. We are already moving through sustainable GDP growth below the potential level. Now, we’ll need to see job gains slow materially to take pressure off the pace of policy tightening.”
HSBC’s Ryan Wang: “We changed our fed funds rate profile and now expect another 75 basis points in November (previously 50 basis points), 50 basis points in December (previously 25 basis points), and an eventual 25 basis point hike. in February 2023. That should take the Fed funds target range to 4.50-4.75% in February, 50 basis points higher than our previous forecast of a 4.00-4.25% peak. Interest rate risks may still be skewed to the upside given flat and rising inflation.” .