InvestorQ : How much higher do yo use the the Fed rates going from current levels, especially after the 75 bps rate hike in July 2022?
Angel dcosta made post

How much higher do yo use the the Fed rates going from current levels, especially after the 75 bps rate hike in July 2022?

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Juvina Maggie answered.
1 week ago
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IN the July policy statement, the FOMC hiked rates by another 75 bps. Effecitvely, now the Fed has hiked rates by 225 basis points since March and a full 150 basis points just beteen June and July. That raises the big question, will the Fed continue to remain hawkish even after this sharp rate hike and what is the target by the end of 2022. How much higher will the FOMC go from current levels, is the million dollar question. To be fair, the 75 bps hike is lower than the 100 bps hike expected, although still rather hawish.

The most important thing to note about the July policy is tha *** has taken the rates to what is now called the neutral rate levels. In the US context the current range of 225 bps to 250 bps is defined as the neutral level. Above this level, every bps rate hike starts to pull down inflation but it happns at the cost of economic growth. It will also negatively impac the consumer spending. That is the risk beyond neutral level and the Fed is already at a neutral level so it will have to take one step at a time from here on.

That brings us to the other part of your question, how much tighter in 2022? The current indications are that in the remaining 3 meetings in 2022 (between September and December), the Fed may hike rates by another 100-125 bps. That would translate into effective Fed rates of 3.50% to 3.75% by the end of 2022. You can call it heavy front loading of rate hikes and that is exactly what the Fed had promised the markets. However, this will give the Fed enough time and room in the year 2023 to adopt course correction if needed.

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