US: FOMC Minutes signal a calibrated tightening – UOB

Senior Economist at UOB Group Alvin Liew reviews the latest publication of the FOMC Minutes of the September meeting.

Key Takeaways

“The key takeaway from the US Federal Reserve’s (Fed) 20/21 Sep 2022 FOMC minutes was that Fed policymakers were committed to continue its rate hikes to a restrictive policy stance and to maintain it there until inflation was on course to return to the 2% objective, while several  participants noted that, ‘it would be important to calibrate the pace of further policy tightening with the aim of mitigating the risk of significant adverse effects on the economic outlook’.

“Importantly, many participants ‘emphasized that the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action. Several participants underlined the need to maintain a restrictive stance for as long as necessary, with a couple of these participants stressing that historical experience demonstrated the danger of prematurely ending periods of tight monetary policy designed to bring down inflation’. But while the minutes indicated ongoing rate hikes at upcoming meetings, it did not offer any new details on the magnitude of the rate hikes at the next Nov FOMC meeting or the future meetings.

“FOMC Outlook – No change to our call for 75bps hike in Nov: The latest minutes does not change our Fed view, and we maintain our expectations for the FFTR to be hiked by another 75 bps rate hike in Nov FOMC to the range of 3.75-4.00%. We expect the Fed to end the year with a 50bps hike in Dec. Including the hikes so far in 2022, this implies a cumulative 425bps of increases in 2022, bringing the FFTR higher to the range of 4.25-4.50% by end of 2022. We maintain our forecast for one more 25bps rate hike in Feb 2023, bringing our terminal FFTR higher to 4.50-4.75% by end 1Q2023, and a pause to the current rate hike cycle until 1Q 2024”.