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🏦🇺🇸Cable FX Macro Weekly Note: FOMC Sept. Monetary Policy Meeting

**As seen in Risk In The Week report 09/18/2022, subscribe at cablefxm.co.uk/reports


Back in July, the Federal Reserve lifted its main policy rate by 75bps to 2.25-2.50% target range. In the statement, the FOMC said more rate hikes would be needed and that the balance sheet reduction is proceeding. They also noted that inflation remains elevated and this is causing imbalances. The Fed said the jobs market remains robust given recent gains, while spending and production are softer. During the presser, Powell said he sees some evidence of a slowdown in economic activity, however, he also said that it is likely that the economy has not felt the full effect of rate hikes. Back in July, the Fed dropped its guidance on the rate tightening cycle as Powell announced it was time to move into a meeting-by-meeting basis. Among other comments made during the presser, the Fed Chair cautioned that core inflation remains a better indicator than the headline and that the U.S. is not currently in a recession. Since the last meeting, we have seen July and August inflation releases, both figure have slowed relative to the previous as the energy prices impulse decelerates and feeds into the decline. However, core inflation has printed at higher levels with the last read at 6.3% Y/y, up from 5.9% seen in June. The labour market has seen an addition of 526K and 315K jobs per month since July, the figures surprised to the upside. The most recent unemployment rate reading bounced from 3.5% to 3.7%, the first rise since January. Wages lifted some pressure from the Fed as they printed unchanged in August at 5.2% Y/y, while the M/m figure slowed to 0.3% from 0.5%. The desk at Goldman Sachs says the Federal Reserve is likely to hike rates by 75bps this week, this is a lift to their previous outlook of only 50bps, they have also revised their terminal rate forecast higher by 25bps to 4.0%-4.25%. The revisions have led the desk to lower their U.S. growth forecast and lift their unemployment rate projections. Now, Goldman sees a GDP output of only 1.1% for 2023, the unemployment rate is expected to reach 4.1% by end of next year, up from previous 3.8%. Analysts at Commerzbank say that the Fed is unlikely to react to the slower growth headline and will rise rates by 75bps, they do not see signs of a recession in the labour market, yet. Deutsche Bank said they would be looking at the dot plot, they warned that if the median plot projection rises to 4% for 2022, as they expect, the Fed could be in for another 75bps hike in November.






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