Top Wall Street Strategists Discuss Fed's 75bps Hike, Next Moves

In a widely-expected move, the FOMC raised the federal funds rate by 75 bps to 2.25% to 2.5% from 1.5% to 1.75%.

“Recent indicators of spending and production have softened. Nonetheless, job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures,” the FOMC statement said.

Still, Fed Chair Jerome Powell’s comments during the conference sent equities sharply higher. Powell said that the Fed could slow rate hikes in the coming months.

Here’s what the top Wall Street economists and strategists have to say about yesterday’s events.

Goldman Sachs’ Jan Hatzius: “We continue to expect the FOMC to slow the pace from here, delivering a 50bp hike in September and 25bp hikes in November and December, for a terminal rate of 3.25-3.5%. Quite a bit of additional data will be available by the September meeting, however, and Powell said that another 75bp hike remains on the table.”

UBS’ Jonathan Pingle: “We continue expect the FOMC remains on track to raise rates by 50 bp at the September FOMC meeting.”

Citi’s Andrew Hollenhorst: “We read Chair Powell’s press conference as more hawkish than the market’s interpretation… Powell mentioned a “slowdown” in hikes would be appropriate “at some point” but that point remains undetermined and we would not view this as a particularly dovish comment. A “larger size” hike was left on the table for September. We continue to expect core inflation to push the Fed to hike more aggressively than they or markets anticipate with a 75bp hike in September, policy rates reaching 4% by year-end and probably rising further in early 2023.”

Bank of America’s Aditya Bhave: “In our view, Chair Powell’s emphasis on returning inflation to 2% is significant. It suggests the Fed has a high pain threshold to get inflation back to target… Powell’s strong focus on the inflation mandate therefore supports our forecast that the economy will in fact go into recession in the second half of this year. There is still a path to a soft landing, but it is too narrow to be our base case. We continue to expect the Fed to hike by 50bp in September, and then by 25bp in November and December. After that we expect the Fed to pause, with rates clearly in restrictive territory and clear signs that the economy is in recession.”

By Senad Karaahmetovic

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