US | Fed to start raising rates more aggressively

Summary

We expect the Fed to hike the fed funds rate by 50bps and launch QT amid “much too high” inflation. The aim will be to bring inflation down while achieving a soft-landing of the economy.

Key points

• Key points:
• Last March, the Fed raised the fed funds rate for the first time since the start of the pandemic. A widely expected 25bps hike marked the beginning of a process to remove monetary policy accommodation.
• Focused on getting inflation back to the 2% goal, the Fed will begin to raise the fed funds rate more aggressively, by 50bps in at least the next two meetings, and will launch QT to reduce its balance sheet holdings.
• The aim will be to bring inflation down while achieving a soft-landing of the economy. That is, getting inflation under control without threatening the economic expansion and job gains.
• We continue to expect 200bps of rate increases through year-end to 2.5% followed by a total of 50bps further increases in 1Q23. As of today, risks are tilted towards more hikes.

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