CIBC comments on the Federal Open Market Committee (FOMC) rate hike Wednesday.
Via eFX.
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- “Too many inflation reports that tested the Fed’s patience have it adopting the Olympics slogan of “faster, higher, stronger” for its stance on rate hikes. Today’s 75bp hike to a range of 1.50-1.75% was hinted at through media contacts on Monday, so the market was well prepared, and with that mega-step came an appropriately hawkish statement. There was one dissenting voice in favour of a somewhat smaller 50bp hike.
The forecast underscores the higher starting point for inflation, and the willingness to take a larger bite out of growth ahead to bring price pressures down. GDP is now expected to be up only 1.7% Q4/Q4 this year and next (previously 2.8% and 2.2%), and the unemployment rate is also now expected to have to move up (to 4.1% by 2024) in order to achieve a core PCE reading close to target by the end of the forecast horizon,” CIBC notes.
“The median dots show rates rising to 3.4% this year and 3.8% in 2023, which would be well above the 2.5% longer-run neutral projection. While we see that as overkill and unlikely to materialize, another 75bp move at the next FOMC, and a peak of 3.25% for the fed funds ceiling attained this year, now seems likely before Powell’s team sees enough signs of a slowing to stop at that level. With the Fed having normalized a 75bp move, we see the BoC also hiking by that amount in July, and the Bank getting to 2.75% this year before also seeing enough of a deceleration in growth and inflation to call it quits at that level.
Markets were braced for a big move today and a hawkish tilt to the dot plot projections, and as such reaction has been fairly limited so far,” CIBC adds.
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Can’t say I agree its a mega step.
