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  • The Fed maintained Fed Funds Rate target unchanged at 5.25-5.50% as widely anticipated, but surprised hawkishly with clearly more optimistic projections.
  • Median growth forecasts were revised higher for 2023-2024, warranting a 50bp upward revision to both 2024 & 2025 median rate projections.
  • We remain more pessimistic on the economic outlook, and make no changes to our Fed call. We still expect no further rate hikes, and quarterly 25bp cuts starting from Q1 2024.

Powell delivered a ‘hawkish hold’, as the updated economic projections outlined an optimistic path towards soft(-er) landing. Real GDP forecasts were revised up to 2.1% (from 1.0%) for 2023 and 1.5% (from 1.1%) for 2024, while inflation forecasts only received minor adjustments. Median forecast for unemployment rate was also revised higher, with the peak now seen at only 4.1% in 2024-2025 (from 4.5%).

Powell underscored that the more optimistic growth outlook warrants rates remaining higher for longer, and the median ‘dots’ were revised up by 50bp for both 2024 (5.1%) and 2025 (3.9%). Markets erased some of the cuts priced in for 2024, with 2y UST yield rising some 12bp. Powell mentioned solid realized data and recovering real income growth as factors lifting the outlook, and while the looming government shutdown and UAW strike were seen as downside risks, they have not materially impacted the baseline view for now.

The FOMC statement was mostly unchanged, economic growth was described as ‘solid’ rather than ‘moderate’ while job gains were seen ‘slowing’ rather than ‘robust’. Powell also maintained strong emphasis on data-dependency. 

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