CIBC Research discusses its reaction to today's FOMC policy decision.
"Hiking in 50 basis point increments isn’t the Fed’s usual style, but then again, today’s inflation isn’t the usual backdrop either. Today’s half-percent move was well telegraphed and of no surprise to financial markets. The statement brushed aside the unexpected drop in Q1 GDP, and cited the strength in employment and, of course, elevated inflation. Quantitative tightening will start in June at a bit more of a rapid initial pace than some expected, by letting up to $30 bn in Treasuries and $17.5 bn in agencies mature without reinvestment each month, and doubling both after three months. The central bankers want to convince Americans that while they can’t do much to alleviate this year’s price pressures, they shouldn’t expect elevated inflation to persist in subsequent years, and hiking more aggressively up front is part of that messaging," CIBC notes.
"Another 50 bp move seems likely at the next meeting as a result, but the statement didn’t hint at anything more than “ongoing increases”. There were no dissents in favour of a larger hike today. We still expect that as rates approach 2% later this year, there will be enough signs of cooling inflation and growth to return to 25 bp moves, with a peak in the mid-2% in early 2023," CIBC adds.