🏦❗️Cable FX Macro Weekly Note: FOMC February Meeting

**As seen in Risk In The Week report 01/27/23, subscribe at cablefxm.co.uk/reports

The December FOMC meeting marked the first slowdown in this cycle’s pace of tightening, as the Fed raised benchmark rates by 50bps to a 4.25%-4.50% target range. The initial statement repeated that ‘ongoing’ rate hikes were likely appropriate, however, it also mentioned that the Fed would take tightening and policy lags into account. On the SEP, 7 out of 19 officials saw 2023 rates above 5.25%, the median forecast showed rates at 5.1% in 2023, 4.1% in 2024. The growth forecasts were pencilled at 0.5% for 2023 and 1.6% for 2024. On inflation, the Fed projected a measure of prices to ease to 3.1% this year and to 2.5% by 2024. The board noted that growth in spending and production has been modest, while job gains have been robust and unemployment remains low. On the presser, Fed Chair Powell said that the speed of rate hikes was no longer the most important question and stated that the size of the February rate rise will depend on incoming data. Also, he mentioned that it is important financial conditions reflect policy restraint, we remind you that conditions indicators have moved in opposite way of what the Fed desires. The Bloomberg U.S. FCI extended this week to the highest since February 2022, meaning monetary conditions are easing and the index has erased all the tightening progress made during this tightening cycle. Analysts at BMO expect a 25bps rate hike next week and the Fed to announce that they will keep tightening at this pace, they note that the Fed’s dot plot looks for another 50bps of hikes on top of next week’s lift. The desk sees a 50% chance of a “shallow” recession as the prices outlook has eased globally, BMO says this has justified the recent market recovery since the start of the year. Commerzbank says that whether the Fed delivers or not will also depend on the employment cost index, however, this data will be released one day after the February FOMC meeting.