US | Fed steps up tightening pace and signals a more aggressive approach

Summary

The main goal is to avoid long-run inflation expectations de-anchoring; rates will be at a “modestly restrictive level” by year-end.

Key points

• Key points:
• The Fed raised today the policy rate by 75 bps and signaled that another hike of this size was possible at its next meeting, but also that multiple consecutive 75 bps hikes were unlikely.
• The few tweaks to the wording of the policy statement along with Chair Powell remarks point to a second pivot in Fed’s approach to this hiking cycle.
• The Fed signaled a much steeper path of rate hikes and a wider consensus among FOMC participants on the need to take the fed funds rate to a restrictive level.
• The Fed will most likely take the rate above 3% and 3.5% by year-end and 1H23, respectively.
• The Fed is determined to slow demand until imbalances decrease and to keep the continued confidence that long-term inflation expectations are still showing.

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