US | Fed’s plans to slow the hiking pace bolstered as inflation eased further in November

Summary

In spite of positive inflation data and signs since the last meeting, to avoid an unwanted further decline in interest rates along the yield curve, Chair Powell will likely accompany the FOMC decision with a still relatively hawkish press conference.

Key points

• Key points:
• The Fed is set to slow down the tightening pace tomorrow with a 50bp hike, taking the fed funds rate to a 4.25-4.50% target range, its highest level since late 2007.
• Fed’s plans to slow the pace of interest rate increases were bolstered after inflation came in better than anticipated and goods disinflation signs mounted.
• Headline inflation slowed to 7.1% YoY (from 7.7% in Oct), with core inflation easing to 6.0% YoY, driven by core goods which fell (-)0.5% MoM and to a lesser extent by a more moderate 0.4% MoM increase in core services.
• The updated Summary of Economic Projections (SEP) will likely try to reinforce a still hawkish Fed through a higher end-2023 policy rate and a weaker economic scenario aligned with a slightly more hawkish stance.
• Chair Powell will stress the updated projections in the SEP to convey a hawkish message but the growing weakness in core goods inflation is now difficult for the Fed to ignore.

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