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Fed Delivers Third-Straight 0.75% Hike as Race to Restrictive Territory Heats Up

Thursday, September 22, 2022
Fed Delivers Third-Straight 0.75% Hike as Race to Restrictive Territory Heats Up © Reuters

By Yasin Ebrahim

Investing.com -- The Federal Reserve delivered its third consecutive 0.75% rate increase on Wednesday and showed no sign of easing its push into restrictive territory as it battles to cool the embers of inflation.

The Federal Open Market Committee raised its benchmark rate to a range of 3% to 3.25% from 2.25% to 2.5% previously.

The latest Fed rate hike lifted its benchmark rate by 300 basis point, or 3% in just six months as the central bank accelerates policy to restrictive territory with the aim of slowing growth enough to make a meaningful dent in inflation.

The Fed’s hawkish stance has many convinced that the possibility of a hard landing, or recession won’t be enough to deter the central bank from persisting with tightening.

The Fed now sees its benchmark rate rising to 4.4% in 2022, above the 3.4% forecast in June, paving the way for further front-loading of the rate hikes in the remaining two Fed meetings for the year and into 2023.

The central bank previously signaled that rates would peak at about 3.8% in 2023, with cuts likely to follow in 2024, but now the central bank is preparing to keep rates higher for longer.

Rates are expected to reach 4.6% in 2023, compared with 3.8%, respectively. In 2024, the voting Fed members forecast rates dropping to 3.9%, though that is still higher than the prior forecast of 3.4%.

Last month, Powell delivered a hawkish surprise in a speech at the Jackson Hole symposium, saying that the Fed backed a “prolonged period of very restrictive monetary policy” to tackle inflation, even if it brings “some pain” for households.

Fresh projections from the Fed appear to support Powell’s stance as inflation was revised higher and growth lower.

The core personal consumption expenditures price index, the Fed’s preferred measure of inflation, is forecast to climb to 4.5% in 2022, up from a prior forecast of 4.3%. For 2023, inflation is estimated to drop to 3.1%, compared with the prior forecast of 2.7%, while in 2024 inflation expectations are unchanged at 2.3%.

Fed members estimate the economy will grow 0.2% in 2022, down sharply from a prior forecast of 1.7%. Growth forecasts were also revised lower for 2023 and 2024 to 1.2% and 1.7% from 1.7% and 1.9%, respectively.

As well as rate hikes, the Fed’ balance sheet reduction, or quantitative tightening, plan is expected to further tighten financial conditions. Earlier this month, the Fed ramped-up the pace of QT to $95 billion, up from $47.5 billion in June.

For some, the pace of the tightening has increased the risk of the Fed slowing growth by too much, pushing the economy into a deep recession.

“Clearly the risk is stacked towards exacerbating the slowdown into a hard landing. That is by far the bigger risk at the moment, and it increases with every rate raise into this slowing growth environment,” Will Rhind, founder and CEO, GraniteShares told Investing.com in an interview on Tuesday.

The threat of an imminent recession, however, remains unlikely, Rhind said, as the economy is “still in good shape, unemployment low, and consumers are still spending money.”

The Fed believes that the move to restrictive territory will weigh on consumer spending as rising unemployment rises will keep a lid on wages.

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04-10-2022 13:08:33 (UTC+7)

EUR/USD

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EUR/USD

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GBP/USD

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 EUR/USD0.9860↑ Buy
 GBP/USD1.1354↑ Buy
 USD/JPY144.82Neutral
 AUD/USD0.6497↑ Buy
 USD/CAD1.3604Neutral
 EUR/JPY142.80↑ Buy
 EUR/CHF0.9768↑ Buy
 Gold1,712.30↑ Buy
 Silver20.973↑ Buy
 Copper3.4605↑ Buy
 Crude Oil WTI84.00↑ Buy
 Brent Oil89.39Neutral
 Natural Gas6.468↑ Sell
 US Coffee C215.55↑ Sell
 Euro Stoxx 503,342.17↑ Sell
 S&P 5003,678.43↑ Sell
 DAX12,209.48Neutral
 FTSE 1006,908.76Neutral
 Hang Seng17,079.51↑ Buy
 Small Cap 20001,709.05Buy
 IBEX 357,462.00↑ Buy
 BASF40.940↑ Sell
 Bayer47.95Sell
 Allianz161.54Neutral
 Adidas119.00↑ Buy
 Lufthansa5.716Sell
 Siemens AG100.92↑ Sell
 Deutsche Bank AG7.630↑ Sell
Mua/Bán 1 chỉ SJC
# So hôm qua # Chênh TG
SJC Eximbank6,550/ 6,630
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SJC HCM6,540/ 6,640
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JPY160,63170,05
KRW14,4117,55
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