**As seen in Risk In The Week report 10/28/22, subscribe at cablefxm.co.uk/reports
The Federal Reserve delivered a 75 basis points rate hike on its September meeting, this took the upper bound of the range to 3.25%. The move was in line with estimates while focus lied on the Fed macroeconomic projections, the median forecast penciled rates at 4.4% by year-end. The median projection showed that policymakers expected rates at 4.6% in 2023 and 3.9% in 2024. These estimates have been topped by market pricing, last week, USD implied rates saw the cycle peaking at around 5.0%, while Fed speakers have expressed that work is not yet done.
Back to Fed projections, the bank saw growth at 0.2% for this year, the downgrade is set to be followed by 1.2% and 1.7% in 2023 and 2024. On the inflation front, the Fed’s preferred measure of prices is expected to end the year at 5.4% (currently at 5.1% Y/y). Inflation is expected to ease to 2.8% by next year and 2.3% by 2024. Markets are currently pricing another move of the same magnitude, however, we have recently seen the BoC and the RBA slowdown in their pace. The inflation impulse has recently turned negative in the U.S., headline jobs growth is also slowing down, however, inflation is still well above the Fed’s target of 2%, and we have not seen a print below 200K jobs/month. Analysts at CIBC sit in line with consensus and expect a 75bps move from the Fed, they note that would leave rates only 50bps away from the projected peak. Also, the desk said that it would not expect the Fed to drop any dovish chatter, for this to happen unemployment rate would have to tick higher, it currently stands at 3.5%, and it is expected to rise to 3.6% in October.
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