Fed hikes rates and hints that peak may be close

Friday 24 March 2023

Amundi Convictions

March 2023 | 2 minute read    

   

The Federal Open Market Committee (FOMC) of the Fed announced on 22 March an increase of the federal funds rate by 25 basis points to the range between 4.75-5.00%, a level not seen since 2007. 

Uncertainty in the banking sector made sparked speculations about a potential pause in the hike cycle. However, the Fed pointed out that its macro prudential policy tools, including the new Bank Term Funding Program, should help to stabilise the confidence in the banking sector and stick to its path.

In the press conference, Chair Powell struck a balanced tone as he reiterated the importance of continuing the fight against high inflation and preserving financial stability. Mr Powell also believes that the future tightening will come from constrictions in liquidity and financial conditions and less from interest rates while confirming that the Fed is likely close to the peak in its rate cycle.

In the Summary of Economic Projections (SEP), the GDP forecast was revised from 0.5% to 0.4% for 2023 and from 1.6% to 1.2% for 2024, while it climbed slightly higher in 2025, from 1.8% to 1.9%. The Core PCE projection was increased to 3.6% for 2023, 2.6% for 2024 and kept unchanged at 2.1% for 2025.

Markets interpreted the hike as dovish, triggering a broad rally in asset prices, but then sold off later in the US trading day as Treasury Secretary Janet Yellen indicated that the US Treasury was not considering a broad increase in deposit insurance.

1. Source: Amundi Institute, Fed delivers a dovish hike: a rate cycle peak may be close, 23 March 2023

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Date of first use: 23 March 2023
Doc ID: 2809112