Santander’s Stephen Stanley said he likened today’s statement to Powell’s Jackson Hole speech in August: “It is short and to the point. More importantly, it is significantly more hawkish than I anticipated.”
“At this time, I am sticking to my call for a 25 BP rate hike on March 22. I still believe that the bar is high for the Fed to reverse field and increase the magnitude of its rate moves. Nevertheless, there is no question that Powell opened the door to a 50 BP hike in March.”
Capital Economics’ Andrew Hunter: “The upshot is that not only are interest rates set to rise higher than we previously anticipated, but there is a lot less scope for rate cuts later this year than we had originally thought.
“Nevertheless, with most leading indicators still flashing red and the impact of the huge monetary tightening already seen still feeding through, we still believe the real economy and labour market are likely to be weaker this year than the Fed expects, with a recession, the most likely outcome. That should push inflation down a little more quickly than the Fed anticipates.
“As a result, we still think rate cuts will come sooner than markets are now pricing in, and potentially still before the end of this year.”
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