Fed lays groundwork for more rate hikes amid hawkish dot-plot

(Alliance News) - The Federal Reserve upped the ante in the battle to contain inflation, but analysts believe the central bank's work is far from over.

"While Fed Chair Powell provided little news in terms of concrete policy signals, the updated economic projections were clearly more hawkish than markets had anticipated," analysts at Dankse Bank commented.

A third 75 basis point hike on-the-trot took the target range for the federal funds rate to 3.00% to 3.25%. The three-quarter point hike was largely what the market expected, though there had been some that believed the Fed would turn to a 1% lift.

The Fed has now lifted rates by 3% this year. And dot-plot projections suggest there are more rate hikes to come.

The median forecast is for the federal funds rate to stand at 4.4% at the end of 2022, up from the June forecast of 3.4%.

"We also think Fed will prefer to continue frontloading the upcoming rates hikes, and now expect Fed to hike by 75bp at both November and December meetings. Looking further into 2023, we continue to see risks tilted towards rates staying at restrictive levels for longer," Danske analysts added.

Markets fluctuated after the Fed decision, tumbling initially, before rallying as Jerome Powell spoke. Stocks fell once again before the Fed chair concluded the press conference, as the stark interest rate projections painted a hawkish picture.

"The dots amplified Jackson Hole's hawkish tone, with a higher rate trajectory amid more persistent inflationary pressures and resilient growth. With Powell suggesting a high bar for slowing the pace of hikes, we now expect another 150bp on top of September's 75bp hike, with the target range peaking at 4.50-4.75% in Q1 23," analysts at Barclays commented.

By Eric Cunha; [email protected]

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