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Fed raises rates by 0.5%

Many had hoped today would signal the end of the Committee’s hiking campaign.

14 December 2022

The Federal Reserve (Fed) raised rates by 0.5%, as widely expected, to a 4.25-4.5% range. This was an already priced in dovish hike, but the more hawkish commentary that came with it sees the Fed still raising rates in the following meetings. Many had hoped today would signal the end of the Committee’s hiking campaign that began over a year ago.

Median Fed expectations for rates at the end of next year stand now at 5.1%, slightly ahead of where the market was thinking.

Another three hikes of 0.25% are now being pencilled into markets, then a pause until rate cuts of a full 1% collectively are in the offing in 2024, according to the Fed. Markets predictably are not reacting well to the hawkishness in the commentary, having hoped that enough tightening had already been applied. With inflation still so high, ending the hiking cycle so soon was never going to be the Fed’s view and continued tightening (albeit much smaller in quantum) is warranted.

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Charles Hepworth

Investment Director
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