Fed to take rate to 3.25-3.50% by the end of this year – BBVA

On Wednesday, the Federal Reserve raised the key interest rate by 75 basis points, as expected. Analysts at the Research Department at BBVA stick with our forecast that the Fed will take the fed funds rate to a 3.25-3.50% by the end of this year, shifting to a 50 bps hike in September, followed by two consecutive 25 bps hikes in November and December.

Key Quotes: 

“We stick with our forecast that the Fed will take the fed funds rate to a 3.25-3.50% target range by the end of this year, which will imply a shift to slow the pace of rate increases to a 50 bps hike in September, followed by two consecutive 25 bps hikes in November and December.”

“We continue to expect the fed funds rate to peak at 3.75-4.00% in 1H23 as we anticipate that core inflation will still show signs of stickiness by then. Yet, the path for monetary policy in 2023 and beyond is becoming much more uncertain as risks to the outlook will likely become more two-sided. Increased odds of a recession in 2023 will make the Fed's job more challenging. Uncertainty around the Fed steps in 2023 will rise, but for the time being, the most likely scenario is still that the Fed will have the need to stick to the series of additional rate hikes that seem more plausible for the median of Fed officials in the latest update of the Summary of Economic Projections (SEP).”