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🏦🇺🇸Cable FX Macro Weekly Note: FOMC December Meeting

**As seen in Risk In The Week 12/09/2022, subscribe at

The Fed raised its benchmark rate by 75bps to 3.75%-4.0% target range in November, and currently this is looking as the last of the super-sized moves. Some key takeaways from the statement were that the Fed was looking into ongoing rate hikes to take rates to a ‘sufficiently restrictive’ level, while it said to take the cumulative tightening and its lags into account. Board members also noted that inflation has remained elevated while the labour market is resilient as unemployment rate remains low. On the presser, Powell said that there is still some way to go on rates as the peak level is higher than previously expected, this has been a trend where Fed staff has been revising their projections higher. On rate hikes, Powell said that it would be appropriate to slow down the pace as soon as next meeting, but expressed that he does not think that the Fed has overtightened. Lastly, Powell warned that it was premature to think about pausing rate hikes. We remind you that we have seen two labour and one inflation reports since the Fed met, a breakdown of the latter is in the above paragraph. A period of continuous disinflation should support the Fed’s intention to ease the rate hiking pace, but not a lower level of the terminal rate, says Nordea. The desk expects the Fed to hike the fed funds rate by 50bps and to increase the rate path by 25bp for 2023 and 50bp for 2024, which will leave the dot plot far above the current market pricing for the next two years. Nordea is cautious on whether Fed Powell will comment on market pricing, as he has gradually moderated his remarks since the previous FOMC meeting. However, we remind you that financial conditions in the U.S. remain at the same level where we were back in early March. Monetary conditions have recently been supported by a pullback in equity prices and low volatility expectations. Also, most bond and money market indicators remain within their 52-week averages. Such developments won’t be welcomed by Powell, as they try to tighten monetary conditions in order to control inflation.



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