The Fed has delivered a third 75 bp rate hike in as many meetings. This is an extraordinarily aggressive stance and a speed of tightening that is quite unprecedented.
More is in store. In fact, the committee anticipates 125 bp in additional hikes through the end of the year and a little more in 2023. This is a lot. What is particularly surprising, in fact, is that the inflation forecast shows little to no response to this tightening phase. In fact, the inflation forecast has been slightly raised throughout the forecast horizon.
This is a little bit puzzling. We are looking at the range of leading indicators of inflation that are showing some softening and in some cases materially so. And so, we are looking at the Fed summary of economic projection at this point as less of a forecast per se and a little bit more of a statement of intent, a commitment to beat inflation. For our part though, we still believe that in the next few months, this intent could be challenged by softening incoming data.
