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Autopilot Fed Hikes Another Three-Quarters of a Point, No Surprises Again

In a repeat play of the July and September meetings, the Fed hiked rates by 75 basis points.
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Image courtesy of the Fed.

Image courtesy of the Fed.

FOMC Ticked All the Boxes (Again)

  • 75 Basis Point hike to 3.75 to 4.00% - Expected
  • Fed anticipates more hikes - Expected
  • Quantitative Tightening (QT) of treasuries and mortgages continues - Expected
  • Strong commitment to a 2 percent inflation objective - Expected
  • Statement on monitoring conditions - Expected
  • Fed mentioned robust jobs and the war in Ukraine - Expected

This was a short and boring press release. There were no dissents.

The above points were taken straight from my September FOMC post. All I had to do was change the target rate in the first point

Here is the the FOMC Press Release, emphasis added to match the tick box points.

Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.

Russia’s war against Ukraine is causing tremendous human and economic hardship. The war and related events are creating additional upward pressure on inflation and are weighing on global economic activity. The Committee is highly attentive to inflation risks.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 3-3/4 to 4 percent. The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that were issued in May. The Committee is strongly committed to returning inflation to its 2 percent objective

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments. 

Autopilot

The FOMC committee is on autopilot. 

The Fed has signaled it will keep hiking until it breaks something important. We are not there yet.

Don't worry, we will get there. 

Expected Path

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For the expected path of rate hikes, please see An 88 Percent Chance the Fed Hikes by Three-Quarters of a Point Today, Then What?

I captured rate hike odds just ahead of this meeting. In a few days, I will do an update to see what if anything changed. 

Terminal Rate 

The market expectation of a terminal rate is 5.00 percent in June or September of 2023. 

Given the Fed's autopilot message, I don't expect much of a change until something breaks.

Right now, I highly doubt we get to 5.0%. In fact, I expect we will see our last hike no later than December 2022 at 4.25% to 4.50%.

A recession will then be obvious.

This post originated at MishTalk.Com.

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