StanChart: FOMC To Pause After Sept As Tightening Hits With A Lag

Standard Chartered this week raised their July FOMC hike forecast to 75bp (from 50bp). But they continue to see a 50bp raise in September, have dropped their view for a 25bp November hike, and now see a pause through 2023 at 2.75-3.00% (so their terminal rate view through next year remains unchanged).

• While they thought about raising their July call to 100bp, they thought "such a steep hike would be a policy mistake" in part "given uncertainty on how quickly the economy and inflation will respond to the tightening already in place".
• They expect the US economic slowdown to be "clear enough" by Q4 that a pause will be appropriate. They think the Fed should be less focused on targeting neutral rates given huge uncertainty; rather the FOMC should gauge "lags between policy changes and activity/inflation."
• At the July meeting, Powell will repeat that the FOMC doesn't see 75bp hikes as the norm, and "may possibly add that as rates become more contractionary, the bar for justifying big moves gets higher. However, he is also likely to reaffirm that bringing inflation down is the Fed’s goal, and to avoid sending a signal to markets that encourages aggressive buying of risk."