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Jun 15 - 02:55 PM

USD: June FOMC: "Faster, Higher, Stronger' - CIBC

By eFXdata  —  Jun 15 - 02:25 PM

CIBC Research discusses its reaction to today's FOMC June policy decision. 

"Too many inflation reports that tested the Fed’s patience have it adopting the Olympics slogan of “faster, higher, stronger” for its stance on rate hikes. Today’s 75bp hike to a range of 1.50-1.75% was hinted at through media contacts on Monday, so the market was well prepared, and with that mega-step came an appropriately hawkish statement. There was one dissenting voice in favour of a somewhat smaller 50bp hike.

The forecast underscores the higher starting point for inflation, and the willingness to take a larger bite out of growth ahead to bring price pressures down. GDP is now expected to be up only 1.7% Q4/Q4 this year and next (previously 2.8% and 2.2%), and the unemployment rate is also now expected to have to move up (to 4.1% by 2024) in order to achieve a core PCE reading close to target by the end of the forecast horizon," CIBC notes.

"The median dots show rates rising to 3.4% this year and 3.8% in 2023, which would be well above the 2.5% longer-run neutral projection. While we see that as overkill and unlikely to materialize, another 75bp move at the next FOMC, and a peak of 3.25% for the fed funds ceiling attained this year, now seems likely before Powell’s team sees enough signs of a slowing to stop at that level. With the Fed having normalized a 75bp move, we see the BoC also hiking by that amount in July, and the Bank getting to 2.75% this year before also seeing enough of a deceleration in growth and inflation to call it quits at that level.

Markets were braced for a big move today and a hawkish tilt to the dot plot projections, and as such reaction has been fairly limited so far," CIBC adds. 

CIBC Research/Market Commentary


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