TD Securities:
The Fed met market expectations with a unanimous 75 basis-point hike, contrary to the prior meeting, where there was one dissention in favor of 50 basis points. Clearly, developments on the inflation slide left little doubt this time around. With all members onside to keep tightening the screws on demand, expectations are for continued rate hikes as the Fed aggressively attempts to bring down inflation.
Market pricing is looking for another 50 basis-point hike in September and has the policy rate reaching to upwards of 3.5% by year-end. With this policy path and the rising risk of recession in the U.S., the yield curve is moving even further into negative territory. Chair Powell is on deck to speak. He will have to walk a fine line as he justifies the Fed's actions against the growing downside risks.
BMO:
It’s a full eight weeks between today and September 21 with a lot of data and events to flow in between. The game plan is to move to a “moderately restrictive” stance, which, in the presser, Powell said was consistent with the Summary of Economic Projections’ 3.25%-to-3.50%... as a first pass. We’re keeping with our 50 bp September rate hike call for the time being.
ING:
Comments for Chair Powell that the size of future rate hikes will depend on the data and that smaller rate hikes will be appropriate at some point make obvious sense. Jackson Hole is when we will get a clearer indication from the Fed.
For now, the Fed’s base case remains a soft landing (even if tomorrow’s GDP report shows a trade and inventory swing induced “technical” recession), but this looks hard to achieve in the current circumstances.
Moreover, interest rates don’t stay high for long in the US. Over the past 50 years, the average period of time between the last Fed rate hike in a cycle and the first rate cut has only been six months. This suggests the potential for rate cuts as soon as early next summer
Wells Fargo Securities:
We currently expect another 75 bps rate hike on September 21, but we readily acknowledge that the degree of tightening will depend crucially on incoming data over the intervening period. Four data releases stand out to us as vitally important. Specifically, there will be two employment reports (August 5 and September 2) and two CPI releases (August 10 and September 13) between now and the next FOMC meeting. If the labor market reports show continued strength and/or CPI inflation continues to come in hot, then yet another 75 bps rate hike would be likely.
Committee has wanted to raise rates as fast as possible in recent months to get the fed funds rate back to some measure of "neutral." ("Neutral" is the setting of the fed funds rate that is neither stimulating the economy nor restraining it). Although there is no precise estimate of "neutral," most FOMC members would place it somewhere in the vicinity of 2-1/2% based on the Summary of Economic Projections.
UBS:
Yields bull steepened, U.S. dollar slid as Powell delivered a dovish tone during the press conference. Powell reiterated the importance of headline inflation as it will impact public opinion regarding inflation expectations, we see July headline consumer prices flat
M/M and the core rising 0.24% M/M. However, the Fed targets the PCE Price Index metrics, we forecast CPI falling much faster than PCE, but if Powell is true to his word, a decline in CPI on its own is not enough for the Fed to end rate hikes.
RBC:
With interest rates rising and the global economic growth backdrop slowing, we think it's hard to avoid seeing the economy contract and look for unemployment to drift higher and GDP to decline moderately over the first half of 2023. We expect policymakers could be in a position to pivot to cutting interest rates moderately in the second half of next year, but that is still contingent on inflation pressures slowing.
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