Fed policy decision expectations

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“Next year, however, we think the Fed will raise rates by a further 50-to-75bp, in recognition that the real neutral rate has risen somewhat.”

TD Securities: “We expect the FOMC to deliver its third consecutive 75bp rate hike, bringing the policy stance decidedly above its estimate of the longer-run neutral level. We also look for the Committee to provide more hawkish signals through the update of its economic projections and for chairman Powell to build on his Jackson Hole message.”

Sevens Report: “The deciding factor in whether this meeting is positive or negative for risk assets will likely be the Fed ‘dots’. Specifically, it’ll be the

median projections for the ‘terminal rate’, because at this point investors just want to know when rate hikes are going to stop! Over the past two weeks, the main reasons stocks have declined was because the market priced in a higher terminal rate than was previously expected, from 3.875 per cent-4.125 per cent to 4.25 per cent-4.50 per cent. A higher terminal rate increases the chances the Fed engineers an economic ‘hard landing’ and that, in turn, weighed on stocks.”

Amherst Pierpont’s Stephen Stanley: “For this meeting, I expect a 75 BP rate hike. There has been a little talk in the markets of a 100 BP move, but that never seemed plausible in my view. Since the first 75 BP rate increase in June, Chairman Powell has emphasised that moves that large could be expected to be rare. And yet, here we are looking at a 3rd 75 BP move in a row. The economic data have not allowed the FOMC to step off the 75 BP hamster wheel. With the policy rate likely moving above 3 per cent for the first time in nearly 15 years, I would expect that the FOMC will try to set the stage for smaller rate hikes going forward, but it remains to be seen whether the inflation data will give the Committee a chance to do so in November.”

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