Fed delivers a dovish hike: a rate cycle peak may be close

“Persistent inflation remains the main policy concern.”

Fed delivers a dovish hike- a rate cycle peak may be close

The Federal Reserve hiked the fed funds rate by 25bp, to 4.75-5.00%, a level not seen since 2007. Coming into this week’s Federal Open Market Committee meeting, there was some investor uncertainty regarding whether the Fed may pause its rate hiking campaign in light of recent banking sector stress. We were sceptical that this would be the case, as the Fed was able to point to macro-prudential policies such as the newly implemented Bank Term Funding Program, that have helped stabilise confidence in the banking sector. In addition, a pause in policy could signal to markets that the situation underlying the banking sector may actually be systemic rather than idiosyncratic. In the end, the Fed opted for another rate hike, as stubborn inflation remains its primary policy concern.

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