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Deutsche Bank sees Fed raise key rates to 5%, warns of recession - monetary policy

Fed signals adjustments in upcoming interest rate hikes – monetary policy

The US Federal Reserve (Fed) remains committed to raising the federal funds rate to a “restrictive enough” level, while keeping it there for some time, in order to counter inflation.

However, some participants in the monetary policy meeting held in September warned that the pace of monetary policy tightening could be adjusted, in order to reduce risks to the economy in the future, according to the meeting minutes. The Federal Open Market Committee (FOMC) held on September 21 and 22.

“Many participants note that, in light of the current highly uncertain global economic and financial scenario, it will be important to adjust the pace of further monetary tightening, in order to mitigate the risk of significant negative effects on the economic ‘Olook,’” the Fed Minutes noted.

Moreover, central bank members led by Jerome Powell considered that “as soon as the rate of [dos fundos federais] To a sufficiently restricted level, it would probably be appropriate to maintain this level for some time, until there is convincing evidence that inflation is on track to return to the 2% target.”

At the last monetary policy meeting, in September, when it raised the benchmark interest rate by 75 basis points for the third time in a row, the Federal Open Market Committee had already given a statement of its intention to ease the pace of rate hikes only in 2024.

In the so-called “dot plot” – the Federal Reserve’s forecast – the central bank predicted that the federal funds rate would rise to 4.4% by the end of the year, reaching 4.6% in 2023. According to this forecast, the federal funds rate should only ease federal taxes From 2024 onwards, when it drops to 3.9%. In 2025, it should drop to 2.9%

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However, also at this point, the monetary authority led by Jerome Powell made it clear that it would be willing to “adjust monetary policy if risks arise that may prevent the achievement of objectives.”

Currently, the key rate is set between 3% and 3.25%, as we have not seen since 2008.