The Federal Reserve is committed to slowing down the economy in its aggressive battle against inflation.
As expected, the Federal Reserve (Fed) raised rates by 75 basis points to a 3.25% upper bound at its latest meeting. Markets now expect yet another hike in November, and a probable further move in December following the much more hawkish dot plot forecasts. These ‘dot plot’ projections have shifted higher since the Fed’s last forecast in June and signal higher and further for longer rates, peaking at 4.6% in early 2023 and holding there until at least the end of 2023. The Fed could have spooked markets more by hiking a full 1%. However, it was likely concerned markets would negatively perceive that had it gone a full 1%, faith in its strategy for getting the inflation genie if not back in the bottle then at least near it would falter. While this was more of a market priced-in hike, the hawkish surprise was that rates would need to move higher than previously expected and stay there longer than expected. It is obvious that the Fed is now committed to slowing down the economy sharply to aggressively battle inflation and whatever it says about a potential recession being shallow, unemployment can only be expected to go one way from here – and that is higher.
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