We expect that the Federal Open Market Committee (FOMC) will slow down hike rates from 50 basis points (bps) to 25 bps at its February meeting.
Please find below what we expect:
- The FOMC to hike rates by 25 bps to a range of 4.50%-4.75%.
- Fed Chair Powell will reiterate the Fed’s commitment to restore price stability despite the deceleration in the pace of rate increases. He will reaffirm that rates will probably need to go higher (i.e., for a peak within a range of 5.00%-5.25% by the end of 2023 according to the policymakers’ last median forecast). Chair Powell will also reiterate that the Fed will keep rates high until “the job is done” (i.e., bringing down inflation to the 2% target).
- We expect Jerome Powell to keep the door open for a pause in rate hikes at the March meeting subject to the outlooks on both inflation and real economic activity. He might underlign that over the last 3 months, the annualized inflation rate has been in line with their objective, which is obviously good news. As Fed Vice Chair Lael Brainard recently said, “the FOMC moved policy into restrictive territory at a rapid pace, this will enable us to assess more data as we move the policy rate closer to a sufficiently restrictive level, taking into account the risks around our dual-mandate goals”.
- The Fed will continue its quantitative tightening ($95bn/month since September 2022).
In summary, we expect the Fed to try to keep flexibility and optionality open as monetary policy moves to a more restrictive stance. At this committee, we believe risks are on the dovish side with U.S. interest rates lower.
Disclaimer
This commentary is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.