Fed Hikes Rates 75bps as Expected, Strikes Hawkish Tone with Increase to Projected Terminal Rate

Rates spike after Fed announcement, fall afterward. The Fed announced a 75 bp rate hike today, raising the benchmark federal funds rate to a range of 3% to 3.25%, the highest since 2008. Though the 75 bp hike was no surprise, the increase of the terminal rate to 4.6% in 2023 was higher than expected, which forced the 2-year yield to reach as high as 4.12%. However, Treasuries rallied the rest of the day, the 2-year note ending at 4.06% and the 10-year ending at 3.53%. A side by side comparison of the Fed’s statement can be read here.

Fed releases revised GDP and other economic forecasts. The 2022 median GDP growth projection was revised from 1.7% in June to 0.2% in today’s FOMC summary of economic projections. GDP growth outlooks were also lowered in 2023 and 2024. The estimated 2022 median unemployment rate increased slightly from 3.7% in June to 3.8%, though 2023 and 2024 figures increased significantly. Importantly, the committee expects PCE inflation to decline from 5.4% in 2022 to 2.8% in 2023. 

Day ahead. The current account deficit in the U.S. and initial jobless claims for the week that ended September 17th will both be released at 8:30 AM ET. The Kansas Fed manufacturing index will follow at 11:00 AM ET.