US | Fed set to deliver a 25bp hike in its quest to find a sufficiently restrictive stance

Tomorrow’s policy statement and Powell's comments will likely remain hawkish to keep options open despite recent data pointing to cooling inflation. We will look for signals that challenge or support our baseline view that tomorrow’s hike will prove to be the last.

Key points

• Key points:
• After last month's skip, the Fed is set to raise the fed funds rate by 25 bps tomorrow, bringing it to a 5.25-5.50% target range.
• Several FOMC voting members tried to convey that the Fed will likely have to stick to its plan of adding 50 bps of further rate tightening before year-end.
• Recent data has generally indicated a gradually rebalancing economy, but the Fed will likely insist that “one data point does not make a trend.”
• There has also been some consensus among FOMC participants regarding reduced risks associated with the effects of March’s strains in the banking sector.
• Some Fed officials have also sparked a debate regarding the lags with which monetary policy is affecting economic activity and inflation in the current cycle.

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