The Fed Raised Rates as Expected but Gave Us Nothing on What’s Next

Eleventh Hike & Uncertain Outlook

After ten consecutive hikes since the March 2022 lift-off, policymakers paused the rate hiking cycle last month, in order to assess incoming data and the impact of their actions thus far. After that brief reprieve, the Fed raised rates by 25 basis points on Wednesday, to 5.25-5.5% and the highest level since 2001. [1]

The move was totally priced-in by markets, so attention turned to what the bank would signal for the future path of monetary policy. However, Chair Powell offered us nothing on that front, as he refused to commit to the next steps, making this the most certain and uncertain decision of the year.

On the one hand, he stressed the need for a sustained restrictive monetary stance and kept the door open to further tightening, stressing that "we need to be prepared to raise further". On the other hand, he touted data dependence and warned that a hold is "possible" in September. [2]

Inflation has been coming down fast, with headline CPI decelerating to 3% y/y in June and the stickier core also moderating notably to 4.8% y/y. The central bank has delivered 525 basis points worth of hikes in a short period of time. Given the lagging nature of tightening, there is a good chance that it has already done enough to lower inflation to the 2% target.

However, the Fed has been burnt before and it would be premature to declare victory now,with Chair Powell downplaying the the last soft CPI report as "just one reading". What's more, the labor market remains "very tight", with unemployment close to five-decade lows and the economy performing better than expected. This makes it hard for policymakers to back down, as achieving the inflation goal without an economic slowdown and a hit to the job market, would defy the Phillips Curve and validate the immaculate disinflation scenario.

The Fed's own projections for a median terminal rate of 5.6% [3], imply an additional 25 bps increase this year, but markets have never embraced that. They view yesterday's move as the last of the cycle and expect rate cuts in the first quarter of 2024, according to CME's FedWatch Tool [3]. However, such optimism has been disappointed before.

Yesterday's decision did not make us any wiser around the policy outlook, as Chair Powell adopted an equivocal stance, keeping all options on the table. With more than a month until the next meeting, policy makers will have a lot of data to assess before they make their decision. This sets us up for an uncertain autumn.

Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.



Retrieved 27 Jul 2023


Retrieved 27 Jul 2023


Retrieved 27 Jul 2023

${} / ${getInstrumentData.ticker} /

Exchange: ${}

${} ${getInstrumentData.divCcy} ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%) ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%)

${getInstrumentData.oneYearLow} 52/wk Range ${getInstrumentData.oneYearHigh}

Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here.

Past Performance: Past Performance is not an indicator of future results.