75bp Hike is a Given, But Fed Could Still Surprise
75bp Hike is a Given, But Fed Could Still Surprise
Abstract
A few weeks ago, expectations ramped up for the Fed to hike rates by 100bps at the conclusion of today's meeting. On a more upbeat note, this hike also puts the Fed in a rate range that is close enough to "Neutral" to open discussion about hitting a terminal rate in the next meeting or two. Remember, the neutral rate is the one that neither promotes expansion or contraction, and/or the one that results in stable 2% inflation. The terminal rate is a bit higher in the current case, and simply refers to the rate at which the Fed stops hiking. Several Fed speakers mentioned the possibility of the Fed Funds Rate being close to neutral after today's meeting. Powell can go a step further and address the extent to which the committee sees the need to pursue a substantially higher terminal rate in light of its assessment of inflation and data. The more he says "We're seeing more and more signs of inflation turning a corner and we think we're getting very close to a terminal rate after this hike," the more we could see the big technical floors in bonds get obliterated.