The Federal Reserve raised the target rate by 0.75% to the range of 2.25-2.5%. Chairman Powell confirmed that this is close to neutral.
From the press conference:
- The FOMC is now data-dependant, so the magnitude and pace of future rate hikes is not pre-ordained
- Chairman Powell believes that modestly restrictive monetary policy is required so the forecast from the previous Federal Reserve Meeting is still valid:
- Target rate between 3.25%-3.5% by year-end
- Target rate between 3.75%-4% in early 2023
- A narrow path to a soft landing still exists
Market Implications:
- The market is relieved that the FOMC is not on autopilot and now is data-dependent. This reduces the potential for a large overshoot on the hikes leading to a deep recession.
- With US 10y at 2.78%, long-term rates seem to have little room to drop further in the near term
- Until inflation shows signs of moving lower, the FOMC remains poised to move rates higher
