Analysts On Sept FOMC: Four Continue To Expect A Final 25bp Hike (2/3)

Four analysts saw a further 25bp Fed hike by year-end and continue to do so after the September FOMC. Highlights of their post-FOMC meeting reviews are below:

• Barclays: The SEP showed a significant shift in FOMC participants' view about the interaction between activity, the labor market and inflation. While the committee had previously emphasized that it needed have the economy grow below potential for a while and the labor market to feature some slack in order for inflation to revert back toward the 2% target, it now seems to have embraced a much more optimistic "soft-landing" view, according to which inflation will gradually return to the 2% target by 2026, with GDP growing on average at its potential growth rate, and the labor market showing minimal slack. Asked if a lower inflation projection for Q4 would lead the FOMC to maintain rates at the current level, Powell made clear that the decision would not depend solely on the inflation data, but instead on "the totality of the data, so the inflation data, the labor market data, the growth data, the balance of risks and the other events that are happening out there." Our view is the Fed will raise rates 25bp in November and remain on hold until September 2024.
• BofA: The revised "dot plot" was hawkish. The SEP now shows a "no landing" forecast: there is essentially no price to pay in terms of growth or jobs for bringing inflation back down to target. When pressed on the Goldilocks nature of the SEP, Powell declined from validating it. He instead stated that forecasting is very difficult and the Fed is not committing to a policy path. It will be guided by the data. He said the Fed was aiming for a soft landing but noted that it was not a done deal. We expect one final hike in November, but it is a close call.
• Citi: Powell and the Fed sent an unambiguously hawkish higher-for-longer message. It is unclear why the forecasts showed core inflation cooling amidst growth that continues to run around / above potential and a tight labor market. In our view, a sustained imbalance in the labor market is likely to keep inflation stuck above target, and still expect a 25bp hike to be delivered in November. Powell softly pushed back against NY’s Williams’ view that nominal rates might need to be adjusted down to keep the real rate unchanged (Powell said that could be “part” of the reason for cutting nominal rates).
• Nordea: The new projections implies 1 more hike this year, but Powell made it very clear at the press conference that the totality of economic data would determine future decisions. Going forward, they will proceed carefully.