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United States Monetary Policy November 2022

United States: Fed hikes by 75 basis points in November

At its meeting on 1–2 November, the Federal Open Market Committee (FOMC) decided to raise the target range for the federal funds rate by 75 basis points to 3.75–4.00%—the fourth successive 75 basis-point hike.

The decision to hike was aimed at containing inflation, which has been running well over the Central Banks 2.0% target in recent months due to external price pressures and the tight domestic labor market.

Looking forward, the Fed reiterated that “ongoing increases in the target range will be appropriate”. While the lower-than-expected October inflation data led to market hopes that the Feds tightening cycle could soon peak, our panelists continue to see notable rate hikes ahead, with the upper bound of the federal funds target rate expected to peak close to 5% in the middle of next year. That said, there is a notable discrepancy in panelists views.

Giving their take on the outlook, the EIU said:

“The latest CPI data fit with our view that the Fed will slow the pace of rate rises in the coming months, bringing its policy rate to a peak target range of 4.5-4.75% in February 2023, from 3.75-4% currently.”

Analysts at Nomura are more hawkish:

“Despite the sharp deceleration in core CPI inflation, we think that policymakers will likely discount some of the weakness […] Altogether, we maintain our above-consensus terminal rate forecast of 5.50-5.75%, which we expect in May 2023.”

The next FOMC meeting is scheduled for 13–14 December.

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