**As seen in Risk In The Week report 07/23/23, subscribe at cablefxm.co.uk/reports
The FOMC kept rates unchanged in the June meeting at 5.25%, this pause had been expected by analysts as prices moved towards target faster than the forecast, while it would make sense for the Fed to start considering the growth front and try avoiding a sharp downturn in the economy. The FOMC sees growth at 1.0% this year and at 1.10% in 2024, inflation is expected to slow down to 3.9% this year and to 2.6% by 2024, prices are not expected to come back to target within the forecast horizon. A question mark lies on the higher for longer chatter, while the Fed skips a hike, this doesn’t mean the tightening cycle is over and the board could decide to leave rates at current levels for longer than what the market is currently pricing. Before the presser, swap rates had pared all rate cut bets this year. Also, Fed Chair Powell pointed at the July meeting as “live” and said that the June pause is a continuation of moderating pace of hikes. Following the decision, some Fed officials have noted higher rates from current levels by year- end, market has recently fully priced a 25bps rate hike in July. On a separate note, St. Louis Fed’s James Bullard, one of the FOMC’s most hawkish board members is departing as soon as August, he’s a non-voter this year, but it will be interesting to see how the dovish/hawkish scale tilts after his sudden departure. Rabobank sits in line with swaps pricing as they pencil a 25bps rate hike on Wednesday, this will take the FFR to 5.25%-5.50%. The desk sees a gradual decline in core prices but expect these to remain elevated for the remainder of the year, they added that headline CPI is likely to experience a rebound due to base effects in coming months. Rabo holds its view that the Fed is not going to pivot or cut rates in 2023, they said it is premature to declare a soft landing in the U.S. and forecasts a deterioration in growth during H2. Rabo said it has doubts on rate hikes after July, as Fed Chair Powell adopts a more moderate pace of hiking cycle.
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