Mirabaud AM: Fed eases tightening, but rates will stay higher for longer

“In December, the Federal Reserve confirmed what it implicitly announced, slowing rate hikes to 50 basis points and signaling that more hikes are on the way. Currently, the upper bound of the Fed funds target range is 4.50% and we continue to expect another 50bp rate hike at the February meeting, followed by a 25bp hike in March. The main points of the last FOMC meeting are as follows”. What does this mean? “First, the benchmark policy rate is likely to rise to 5.1% next year, according to the latest median forecasts of FOMC participants” argues Gero Jung, Chief Economist of Mirabaud AM according to whom “this increase in 50 basis points in medium-term expectations is clearly the main – hawkish – result of the last meeting. Furthermore, the distribution of the dot charts follows a similar, restrictive line, as only two FOMC members (out of 19) expect next year’s policy rate to be below 5%. Second, during the press conference, Chairman Powell was clearly hawkish, suggesting that the Fed still has “way to go” to ensure victory in the fight against inflation.