La Française AM: FOMC 02/11 - Establishing the right balance

November 1, 2022

By François Rimeu, Senior Strategist, La Française AM 

It is widely expected that the Federal Open Market Committee (FOMC) will hike rates for a fourth consecutive time by 75 basis points (bps) at its November 2nd meeting.

Please find below what we expect:

• The FOMC to hike rates by 75 bps to a range of 3.75%-4.00%.
• Chair Powell is not expected to provide any guidance on the size of the hike in December to keep all options open before the October U.S. inflation report. Decisions regarding the pace of hikes should continue to be dependent on the incoming data and the evolving outlook.
• Mr. Powell is not expected to rule out higher terminal rates to fight against inflation. Nevertheless, given recent comments from Fed officials and as federal fund rates move into restrictive territory, the central bank could consider less aggressive rate hikes in the future in order to assess the effects of cumulative policy adjustments on economic activity and inflation.
• Mr. Powell to discuss treasuries liquidity during the press conference given potential buyback program backed by Treasury Secretary Janet Yellen.

All in all, the Fed is expected to maintain its restrictive policy until inflation pressures are clearly decelerating. However, we expect Fed Chair Powell to signal a more gradual tightening instead of frontloading rate hikes. This meeting may lead to a modest steepening of the US interest rate curve.