US | Fed keeps easing bias but signals high rates for longer

Summary

In a context of a strong economy and a lack of further progress on inflation in recent months, the Fed unequivocally signaled that it can be patient and will give the restrictive monetary policy stance more time to do its job before deciding to cut rates.

Key points

• Key points:
• The FOMC continued to judge that the current 5.25-5.50% policy rate is well positioned to deal with faced risks and uncertainties around their dual mandate.
• During the Q&A, Chair Powell dismissed the odds of possible rate hikes as the policy focus continues to be on for how long to keep policy restrictive.
• The Fed’s tone has turned more tough compared to the end of last year, but markets have so far priced in a less hawkish path than expected.
• FOMC members formally conveyed their plan to begin to slow down the pace of QT in June by reducing the monthly pace of Treasuries runoff to a 25bn cap.
• We now expect the first rate cut to come in September and anticipate that the Fed will cut the fed funds rate again in December to take it down to 4.75-5.00% by year end.

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