Key takeaways
- As expected, the Fed hiked the Fed funds target range by 25bp to 0.25-0.50%.
- The Fed says that it “anticipates ongoing increases in the target range will be appropriate”. The median dots signal an additional six 25bp rate hikes this year (1.75-2.00% by year-end).
- Fed says the economic implications of the Russian invasion and Western sanctions are “highly uncertain” but “are likely to create additional upward pressure on inflation”.
- Powell says that the US economy is strong enough to handle tighter monetary and financial conditions and more or less admitted that the Fed cannot take several factors into account when conducting monetary policy, as inflation is simply too high.
- Despite the rate hike, we are still of the view that the Fed is behind the curve and six additional 25bp rate hikes this year are probably not enough to curb inflation.
- We keep our Fed call unchanged, still expecting a total of 175bp rate hikes this year (25bp at each meeting but 50bp in June). We still expect an announcement on QT in May.
- FX: At present, we forecast EUR/USD in 1.08 in 12M and we see downside risks to this estimate, as the hiking cycle evolves further amid an economic slowdown which is set to hit European manufacturing relatively more negative.
