US | Fed signals it will move on to a slower hiking pace

Summary

Bringing inflation down to 2% remains the top priority: the risk of doing too little outweighs that of doing too much, so the focus on inflation will remain in the foreseeable future.

Key points

• Key points:
• The Fed delivered a 75 bps rate hike today as widely expected by market participants, us included. Today’s step marks the end of the repeatedly outlined goal to “expeditiously” bring the policy rate to its long-term neutral level.
• The Fed would rather take the risk of a hard-landing outcome than allowing inflation to become “entrenched”. The risk of doing too little outweighs the risk of doing too much.
• Ongoing rate increases will continue, but it likely will become appropriate to slow the hiking pace. The Fed is set to shift to a meeting-by-meeting approach.
• We stick with our forecast that the Fed will take the fed funds rate to a 3.25-3.50% by the end of this year, shifting to a 50 bps hike in September, followed by two consecutive 25 bps hikes in November and December.
• Incoming data in the eight weeks between today’s decision and the one to be taken next September could give the Fed more confidence to outline a clearer path for its tightening pace going forward.

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