• Fed hiked rates by 75bps to a target range of 3.75%-4.00%

• Fed Chief sees narrower path to avoid a recession in inflation fight

• Powell signals smaller rate hikes ahead on path to higher peak

• Fed may hike interest rates at slower pace, but destination is now 5% or higher

The US Federal Reserve delivered their fourth straight 75 basis-point interest rate increase as part of its aggressive battle to bring down the white-hot inflation that is plaguing the US economy, while also signalling their aggressive campaign to curtail inflation could be approaching its final phase. The unanimous decision lifts the target for the benchmark federal funds rate to a range of 3.75% to 4%, its highest level since 2008.

The decision marks the Fed’s toughest policy move since the 1980s and will likely deepen the economic pain for millions of American businesses and households by pushing up the cost of borrowing even further.

The latest FOMC statement reeled in the doves, only to clip their wings thereafter in the press conference when Fed Chair Jerome Powell made two points. While largely unchanged from September, financial markets initially reacted to the insertion “The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments”.

During the press conference, Powell flagged that the terminal rate is likely higher than judged in the September dot plot. He added that it is very premature to be thinking about or talking about pausing the Fed's rate hikes.

Source: BIMB Securities Research - 3 Nov 2022