Fed opens door to smaller interest rate rises
Following the fourth consecutive increase of 75 basis points, the US central bank signalled it may moderate the pace of future rate increases, while also warning the ultimate level of rates could be higher than it previously expected.
Authors
The US Federal Reserve (Fed) raised rates by 75 basis points (bps) for the fourth meeting in a row and said it would continue to reduce its balance sheet in the process known as “quantitative tightening”. However, the statement accompanying the latest meeting of its Federal Open Market Committee (FOMC) rate setting committee signalled it is thinking about slowing the pace of future rate increases.
The accompanying statement read: “the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments”.
This is new and in noting that the Fed had now raised rates by 3.75% in 2022, Chair Jerome Powell reiterated in the press conference following the statement that at some point it will be appropriate to slow the pace of tightening. However, so that no one could become too excited about an impending pivot in monetary policy, he said they have some way to go and that the ultimate level of rates could be higher than previously expected.
In the Q&A session, Powell added that the recent strength of the CPI and employment releases had led him to that view. This opens the door to a smaller rate rise in December, say 50 bps, but the tone of the press conference means it will require softer readings on inflation and the labour market. There will be two prints of each of these variables before the next Fed decision on 14 December. It would seem that the Fed has turned off the autopilot, but remains to be convinced that it has reached its destination.
Important Information
The contents of this document may not be reproduced or distributed in any manner without prior permission.
This document is intended to be for information purposes only and it is not intended as promotional material in any respect nor is it to be construed as any solicitation and offering to buy or sell any investment products. The views and opinions contained herein are those of the author(s), and do not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. The material is not intended to provide, and should not be relied on for investment advice or recommendation. Any security(ies) mentioned above is for illustrative purpose only, not a recommendation to invest or divest. Opinions stated are valid as of the date of this document and are subject to change without notice. Information herein and information from third party are believed to be reliable, but Schroder Investment Management (Hong Kong) Limited does not warrant its completeness or accuracy.
Investment involves risks. Past performance and any forecasts are not necessarily a guide to future or likely performance. You should remember that the value of investments can go down as well as up and is not guaranteed. You may not get back the full amount invested. Derivatives carry a high degree of risk. Exchange rate changes may cause the value of the overseas investments to rise or fall. If investment returns are not denominated in HKD/USD, US/HK dollar-based investors are exposed to exchange rate fluctuations. Please refer to the relevant offering document including the risk factors for further details.
This material has not been reviewed by the SFC. Issued by Schroder Investment Management (Hong Kong) Limited.
Authors
Topics