US | Fed will likely hint it will move to the sidelines following a final 25bp hike

Summary

Markets now forecast two 25bp rate cuts for the two last FOMC meetings this year in November and December. We continue to expect that after this final hike the Fed will pause for the remainder of the year.

Key points

• Key points:
• The Fed will most likely deliver a final 25bp rate hike at tomorrow’s FOMC meeting, taking the fed funds rate to a 5%-5.25% target range peak.
• All eyes will be on the overall message delivered by the FOMC and Powell. Will it remain hawkish and thus be more hawkish than anticipated by markets who seem to be expecting a significant tone softening?
• Although a commitment to a pause in the next few meetings is unlikely as the Fed would rather keep its options open, a hint that the Fed will move to the sidelines for the next few months is possible.
• However, with inflation and wage growth rates still high and an economy that has remained resilient up to now, the Fed will likely dash any hopes that it will discuss cutting rates any time soon.
• Several FOMC voting members agree that the effects of recent banking-sector developments on credit conditions are still highly uncertain and emphasized that the Fed remains primarily focused on inflation.

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