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BNP Ups September FOMC Call To 75bp,  Terminal Rate To 3.75%

FED

BNP joins the growing consensus of sell-side analysts looking for a 75bp hike at the September FOMC (vs prior 50bp expectation).

  • "Fed officials have not pushed back on market pricing aligned with a 75bp hike, and with an “overarching focus” on bringing down inflation, likely want fed funds comfortably at short-term neutral levels before broaching a discussion of a downshift."
  • After reaching 3.00-3.25% this month, BNP analysts expect the Fed to "proceed more cautiously toward the terminal rate—highly sensitive to evolving economic conditions", and maintain their view of a downshift to 25bp hikes in Nov and Dec.
  • Their new expectation of a 3.50-3.75% terminal rate through 2024 is 25bp higher than their previous expected terminal rate, accounted for entirely by the change to the September hike size - but below market pricing of 3.75-4.00%.

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