US: Fed’s terminal rate now seen higher – UOB
09.03.2023, 12:17

US: Fed’s terminal rate now seen higher – UOB

Senior Economist at UOB Group Alvin Liew and Rates Strategist Victor Yong reviews the recent semiannual testimonies by Chief J.Powell.

Key Takeaways

“FOMC Chair Powell in his testimony to the Senate Banking Committee (7 Mar) was hawkish as he warned that the process of getting inflation back to 2% has ‘a long way to go’ and the ultimate level of interest rates is likely to be higher than previously anticipated. He added restoring price stability will likely require the Fed to maintain a restrictive policy stance for some time.”

Revising Our Fed Outlook – Terminal Rate Extended Further, Mar FOMC A Close Call. Powell’s latest Congressional testimony not only indicated we are not near the end [of the tightening cycle], but we may have underestimated when the Fed hikes will end. We continue to expect the Fed to hike in the next two meetings in clips of 25bps at the Mar and May 2023 FOMC meetings, but we further expect another two more 25 bps hikes in Jun and Jul FOMC, bringing our terminal FFTR level to 5.50-5.75%. We continue to expect this terminal rate of 5.75% to last through 2023. And while we keep our the 25bps rate hike call for Mar FOMC unchanged, we note that it is now a very close call, with the increasing risk for a bigger 50-bps hike, according to the changes in market pricing.’

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