• Changing Our Outlook on FOMC

The US – Expecting a 75bps Hike by the Fed.

Inflationary pressure has now opened the door for the Fed to possibly raise rates by 75bps in the coming FOMC meeting in June’22, beating both ours and market expectations.

The Fed raised rates by 50bps in the last meeting (May’22), the first such increase since 2000, to a range between 0.75% and 1.00%.

The Fed last raised rates by 0.75 percentage point at a meeting in 1994, when the central bank was rapidly raising rates to pre-empt a potential rise in inflation.

With the inflation data up 8.6% y/y in May’22, pushing inflation to a 40-year high is a setback to our view that inflation had peaked in March. Rising fuel prices and supply-chain disruptions from Russia’s war against Ukraine have sent prices up in recent months.

Considering the larger than expected inflation rate for May’22, we revised our outlook on FFR projection by including a 75bps rate hike in July’s meeting instead of 50bps. We maintain a 50bps rate hike outlook in September’22, and another 25bps in either November’22 or December’22.

Factoring all of these, the FFR should hover around 3.00% - 3.25% by end of 2022.

Source: AmInvest Research - 15 Jun 2022