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Mester: Rate Forecast Above Fed Median, Still Not Restrictive

  • Speaking to CNBC, Mester (’22 voter) says her rate forecast is probably above the median Fed path vs the September dot plot showing a Fed Funds rates of 4.4% for end-2022, 4.6% end-2023 and 3.9% end-2024.
  • That most likely indicates she’s one of the six dots pencilling in a target range of 4.75-5% for end-2023, i.e. an additional 25bp of hikes through the year vs the median.
  • Current market pricing remains to the low side of that view, with an implied effective rate of 4.22% for Dec’22 and 4.27% for Dec’23.
  • Also of note: the current 3-3.25% as not in restrictive territory, the US economy has handled the Fed’s rate hikes, labor demand is still outpacing supply and with no market disruption seen in the US so far.
  • She repeats the need to get real rates into positive territory and hold them there, whilst acknowledging the stronger USD will help on the inflation side.

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