La Française: 50 or 75 or 100 bps rate hike?

La Française: 50 or 75 or 100 bps rate hike?

26 juli 2022

Fed
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Pre-Fed commentary by François Rimeu, Senior Strategist, La Française AM

Please find below what we expect at the July meeting:

  • We expect the Federal Open Market Committee (FOMC) to hike rates by 75 bps to a range of 2.25%-2.5%, the FED long-term neutral rate estimate, at its July 26-27 meeting.  We do not expect a 100 bps hike despite the strong June CPI (Consumer Price Index), because inflation expectations have dropped.
  • Chair Powell will most likely repeat the committee’s need to see ‘clear and convincing’ evidence that inflation is coming down before moving to a slower pace.
  • He probably will not provide too much information on the size of the hike in September in order to keep all options open.
  • Chair Powell will likely confirm the doubling of the pace of quantitative tightening in September to $95bn/month ($60 bn in Treasuries and $35bn in Mortgaged-backed securities).

This meeting is expected be a confirmation of Fed data-dependency and should be without a meaningful impact on financial market. We expect the FED to remain hawkish in order to restore price stability with a slightly more balanced tone given weak incoming data.

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