• Fed hiked rates by 25bps to a target range of 4.75%-5.00%

• Federal Reserve keeps up inflation fight, betting bank crisis is over

• The terminal rate is still put at 5.00-5.25% this year

• A smaller rate cut is projected in 2024

• Growth projections are lowered for 2023 and 2024

• Core inflation forecasts were raised slightly for this year and next

• Fed’s dovish hike means cycle near to end

The Federal Reserve raised interest rates at a ninth straight meeting and indicated  there may be more hikes to come in a clear sign it is confident that its bid to quell  inflation would not deepen a nascent banking crisis.

The Federal Open Market Committee (FOMC) voted unanimously to increase its  target for the federal funds rate by a quarter percentage point to a range of 4.75%  to 5%, the highest since September 2007, when rates were at their peak on the  eve of the financial crisis. It’s the second straight rise of 25 bps following a string  of aggressive moves starting in March 2022, when rates were near zero. The Fed appears quietly confident the economy won’t be heavily disrupted by  recent banking sector woes. At a press conference following the Fed’s two-day  meeting, Chair Jerome Powell said “We are committed to restoring price stability,  and all of the evidence says that the public has confidence that we will do so. It is  important that we sustain that confidence with our actions as well as our words”.  Officials are prepared to raise rates higher if needed

During the press conference, Powell emphasized the US banking system is sound  and resilient, reiterating a line in the FOMC’s post-meeting statement, and said  the agency is prepared to use all of its tools to maintain stability. He also  acknowledged recent banking turmoil is “likely to result in tighter credit  conditions for households and businesses, which would in turn affect economic  outcomes”, but added, “It’s too soon to tell how monetary policy should respond”. Powell said Americans did not need to worry about their banks ending up in a  similar position to Silicon Valley Bank (SVB). "This was a bank that was an outlier  in terms of both percentage of uninsured deposits and holdings of duration risk”.

Source: BIMB Securities Research - 23 Mar 2023