The Fed keeps steady as the job is not over yet

Friday 04 November 2022

Amundi Convictions

December 2022 | 2 minute read       


The Federal Open Market Committee (FOMC) of the Fed met on 13 and 14 December and decided to increase the Fed funds rate by 50 basis points to the range between 4.25-4.50%, ending the series of 75bp increases that has characterized all the last meetings. The slowdown of rate hikes was widely in line with the expectations of markets’ participants.  


The US central bank remained overall hawkish and underlined how the reduction of the size of rate increases does not mean the end of the tightening of monetary policy, as the fight against inflation continues. The slowdown in rate hikes takes into account the cumulative tightening of monetary policy and the lags with which decisions are transferred to economic activity.  

The overall hawkishness is reflected by the fact that the wording of the FOMC statement has been only slightly changed, and the main message is that there is still more work to be done. Jerome Powell, the Chair of the US Federal Reserve, has reiterated his strong commitment to bringing back inflation to its 2% objective.

The US Central Bank has also released its Summary of Economic Projections (SEP) that saw some sharps revisions to GDP, unemployment and core PCE estimates. The Fed revised its GDP forecast sharply lower from 1.2% to 0.5% in 2023 and to 1.6% from 1.7% in 2024. There was no change to the 2025 GDP forecast of 1.8%. Additionally, the US central bank marked up its forecasts for year-end unemployment rates from 4.4% to 4.6% in 2023, from 4.4% to 4.6% in 2024 and from 4.3% to 4.5% in 2025. The Fed’s core PCE projection was revised up significantly from 3.1% to 3.5% in 2023, from 2.3% to 2.5% in 2024 while the 2025 forecast remains unchanged at 2.1%.

Additionally, the terminal rate signalled by the “dot plot”, a chart that summarizes each Fed official’s projection for the short-term interest rate, has been revised up. Now, the median estimate for the fed funds rate by the end of 2023 has risen to 5.1%, up from the 4.6% peak forecasted in September.

During the press conference, Mr Powell acknowledged that even if the slowdown of inflation in October and November was something positive, it would take more evidence to persuade market participants that inflation is on a downward trend, pointing out that no rate cuts should be expected in 2023.

Overall, the Fed acknowledges that there is no painless way to keep inflation under control and that they would even accept an economic recession in order to bring down inflation to 2%.

Source: Amundi Institute, Fed: Staying on the course until the job is done, 16 December 2022


Unless otherwise stated, all information contained in this document is from Amundi Asset Management S.A.S. and is as of 16 December 2022. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi Asset Management S.A.S. and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not a guarantee or indicative of future results.

Date of first use: 19 December 2022
Doc ID: 2644215