The Fed raises rates 25 basis points… still more hikes to go? – UOB

Alvin Liew, Chief Economist at UOB Group, discusses the latest FOMC meeting, in which the Federal Reserve raised rates 25 basis points, as expected.

Notable conclusions

“The Federal Reserve (Fed), at its March 21/22, 2023 meeting of the Federal Open Market Committee (FOMC), unanimously agreed to maintain its rate hike rate at 25 basis points, same as the February FOMC, raising the Fed Funds Target Rate (FFTR) to 4.75%-5.00%. Its about highest FFTR level since September 2007“.

“In the monetary policy statement, the Fed maintained its text on the economy, was more bullish on the labor market, but included a mention about the US banking system. and more importantly, a key part of the FOMC statement has been adjusted to: “The Committee anticipates that further tightening of monetary policy may be appropriate in order to achieve a tight enough monetary policy stance to return inflation to 2% over time,” which sounded less assertive compared to the earlier statement that “continued increases in the target range will be appropriate.” “(in the February FOMC).”

“As for the dot plot, median terminal rate forecast unchanged at 5.1%, and only one Fed official put his point below 5%, with most members joining just above 5%, suggesting expectations of at least one more 25 basis point hike this week. situation, while seven members expect increases between 50 and 75 basis points. Regarding the Summary of Economic Projections, although FOMC members remain concerned about inflationary pressures in the near term, growth prospects are leaning more and more to the downsidewhich implies a more negative impact of its rate hike cycle.”

“FOMC Outlook – One more and end up at 5.25%? In light of the “less assertive” language change in the FOMC statement and Powell’s comments (on possible credit tightening may mean monetary tightening has less work to do), we are adjusting our terminal FFTR level lower to 5.25% (previous: 5.75%), factoring in a final 25bps hike at the May 2023 FOMC meeting. We expect no rate cuts this year and that this terminal rate of 5.25% will be maintained through 2023.”