FOMC Minutes: Pace of further rate hikes could slow – UOB

Senior Economist at UOB Group Alvin Liew assesses the latest publication of the FOMC Minutes.

Key Takeaways

“The key takeaways from the 26-27 Jul FOMC minutes released overnight (18 Aug, 2am) were that as at late Jul, Fed policy makers agreed there was ‘little evidence’ inflation pressures were subsiding and that it would take considerable time for situation to be resolved. The Fed officials were committed to raise rates as high as required to tame inflation - even as they began to recognise explicitly the risk that they might tighten too much and overly curb economic activity.”

“The participants ‘concurred’ future rate hikes would depend on incoming information, and it will be appropriate ‘at some point’ to eventually slow the pace of rate hikes. Participants observed that, following this [July] meeting's policy Fed Funds Target rate (FFTR) hike [of 75bps to 2.25-2.50%], the nominal federal funds rate would be within the range of their estimates of its longer-run neutral level. In their discussion of risks, the policymakers see risk to inflation remaining on the upside while the risks to GDP growth are mainly on the downside.”

“FOMC Outlook – No Change To Our 50bps Rate Hike Expectations For Sep: The latest minutes does not change our Fed view, and we maintain our expectations for the FFTR to be hiked by 50 bps in the Sep 2022 FOMC. We also still expect another one more 50 bps rate hike in Nov FOMC before ending the year with a 25bps hike in Dec, and this implies a cumulative 350bps of increases in 2022, bringing the FFTR higher to the range of 3.50-3.75% by end of 2022, a range largely viewed as well above the neutral stance (which is confirmed in this minutes as 2.25-2.50%, the Fed’s long run projection of FFTR).”