US | Fed paves the way to wrap up hiking cycle in May

Summary

The Fed raised the fed funds rate by 25 bps but struck a more dovish tone. The updated “dot plot” forecasts just one more hike this year, with the median fed funds rate peaking at 5.1%.

Key points

• Key points:
• The unanimous decision came amid recent baking turmoil and the potential impact of tighter financial conditions as they work their way into the economy.
• In a sign of the importance of bank turmoil, the statement acknowledged that “recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation.”
• We think that rate cuts this year remain unlikely unless banks-related risks broaden, financial conditions tighten sharply, the economy falls into a recession soon and/or inflation eases more rapidly than currently expected.
• For now, we continue to expect one more 25bp rate hike to a 5.00-5.25% target range in May and a pause after that through year end.

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