- Fed hiked rates by 75bp in line with our expectations. While the updated dots now signal more aggressive hiking pace, Powell provided little in terms of new concrete guidance on future policy moves.
- We revise our Fed call and now expect two more 75bp hikes in the November and December meetings, which would end the hiking cycle at 4.25-4.50% by year-end.
- The statement came across as hawkish by the market, but the move reversed course during the press conference. We stick to our forecast EUR/USD to fall to 0.95 in 12M.
Fed hiked rates by 75bp in its September meeting as widely expected. The updated 'dot plot' sees Fed Funds Rate rising around 4.5%, confirming that Fed will continue hiking rates aggressively in the near-term, and in line with the recent market pricing.
Powell provided little in terms of new concrete policy signals. Fed remains data dependent, and focuses increasingly on the current economic momentum and labour markets. Labour demand remains very high in historical perspective despite the recession fears and seemingly permanent shift lower in the trend path of labour supply growth.
As Powell once again reiterated during press conference, Fed needs to continue tightening financial conditions in order to bring economy's aggregate demand back into equilibrium with the supply. The overheating is the most evident in the labour markets, where the constant rise in labour costs continues to create broad-based upward pressure on consumer prices.
As we wrote in Research US - Fed continues to guide US economy towards a recession, 1 September, the recent rebound in real purchasing power points toward a modest recovery in GDP during the H2 of 2022. The near-term positive outlook means that Fed will likely prefer continuing to frontload rate hikes in the coming meetings. Market is looking for another 75bp in the November meeting, 50bp in December and 25bp in early 2023.
We think Fed will prefer more aggressive path, and hike 75bp in both November and December meetings. We also continue to see risks tilted towards Fed maintaining financial conditions at restrictive levels for longer. Consequently, and as Powell also acknowledged, the chances of a 'soft landing' have declined. Our forecast would bring the Fed Funds target rate to 4.25-4.50% by the end of the year. In terms of broader market views, we stick to our forecast for EUR/USD to fall to 0.95 in 12M.
This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector.
This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange.
Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.
Recommended Content
Editors’ Picks
EUR/USD steady below 1.0800 after US PCE meets expectations
EUR/USD remains depressed below 1.0800 after soft French inflation data, amid minimal volatility and thin liquidity on Good Friday. The pair barely reacted to US PCE inflation data, with the Greenback shedding some pips. Fed Chair Jerome Powell set to speak ahead of the weekly close.
GBP/USD hovers around 1.2620 in dull trading
GBP/USD trades sideways above 1.2600 amid a widespread holiday restraining action across financial markets. Investors took a long weekend ahead of critical United States employment data next week. Fed Chair Powell coming up next.
Gold price sits at all-time highs above $2,230
Gold price holds near a fresh all-time high at $2,236 in thinned trading amid the Easter Holiday. Most major world markets remain closed, although the United States published core PCE inflation, the Federal Reserve’s favorite inflation gauge.
Jito price could hit $6 as JTO coils up inside this bullish pattern
Jito (JTO) price has been on an uptrend since forming a local bottom in early January. Since then, JTO has revisited the key swing point formed in early December, suggesting the bulls’ intention to move higher.
Key events in developed markets next week
Next week, the main focus will be inflation and the labour market in the Eurozone. We expect services inflation to be impacted by the easter effect, while the unemployment rate to be unchanged.