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United States Monetary Policy July 2023

United States: Fed hikes rates as expected in July

At the meeting on 25–26 July, the Federal Open Market Committee (FOMC) raised the federal funds rate by 25 basis points 5.25%–5.50%.

The decision was driven by the desire to tame inflation, which continues to run above the Fed’s 2% target despite having more than halved since the start of the year. Moreover, core inflation—which excludes certain volatile items—is well over double the target and has fallen more slowly than overall inflation.

The Fed’s forward guidance was open-ended, suggesting that another rate hike is possible at the next meeting on 19–20 September. The Consensus among our panelists is for the Bank to keep rates unchanged through the end of the year, in line with panelists’ expectations for a slowdown in economic activity in H2. That said, a few panelists see one additional 25 basis-point hike.

Commenting on the outlook, Goldman Sachs analysts said:

“We continue to expect that the FOMC will ultimately remain on hold at the September meeting, as the committee leadership has advocated for a ‘careful pace’ of tightening.”

ING analysts concurred:

“By the time of the 20 September FOMC meeting, we think the Fed will have evidence suggesting inflation remains on the path to 2% and that activity is slowing to below trend rates and the jobs market is cooling as desired. If correct we suspect this will mean another pause.”

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