FOMC preview: Policy rate moving higher as Fed may prepare to slow pace of price stability campaign
REAL ECONOMY BLOG | October 28, 2022
Authored by RSM US LLP
We expect the Federal Reserve to increase its policy rate by 75 basis points to a range of 3.75%-4% when it publishes its policy decision on Nov. 2.
Fed Chair Jerome Powell will almost surely utilize the press conference following the Federal Open Market Committee meeting to note that at one point it will make sense to slow the pace of rate hikes as the central bank ascertains the lagged impact of past rate hikes on the real economy. This will be paired with the text of the policy statement, where the Fed will likely retain language stating “that ongoing increases in the target rate will be appropriate.”
Despite the clear sense of continuity that will be conveyed by the official statement, any mention of a potential slowing of the pace of rate hikes by the Fed in the press conference will almost certainly bolster risk-taking across asset markets in its aftermath. That being said, I do not expect a more explicit indication that the Fed has committed to a slower pace of hikes at its subsequent December meeting. Rather, the central bank will remain comfortable with the constructive ambiguity implied by its statements, Powell’s outlook and the flexibility embedded in its policy path.
This, of course, will provide an opportunity for the FOMC to debate the policy path, and we expect at a minimum a 50-basis-point hike in December followed by a 50-basis-point hike in January of 2023, and a 25-basis-point hike at the March meeting. Together, these hikes would bring the policy rate to a range of 5%-5.25%, where we think the Fed may choose to pause its efforts to restore price stability.
As the duration of the tightening cycle increases, the probability of a dovish dissent increases. While we do not anticipate any dissents during the upcoming November FOMC meeting, it is likely there will be one going forward. Risks around the economic outlook deteriorate and global financial stress increases on the back of interest rate differentials between the United States and foreign central banks that has caused the value of the dollar to soar, the real price of importing oil for everyone else to increase and the cost of dollar-denominated debts to rise.
In fact, we expect that to be one the primary avenues of questioning that Powell will face during the press conference.
Call us at (325) 677-6251 or fill out the form below and we'll contact you to discuss your specific situation.
This article was written by Joseph Brusuelas and originally appeared on 2022-10-28.
2022 RSM US LLP. All rights reserved.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.
Condley and Company, LLP is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.
For more information on how Condley and Company can assist you, please call (325) 677-6251.