As growth and employment begin to deteriorate by the end of the year, the Fed will stop raising rates in 2023, but not lower them again.
We mark-to-market our policy rate forecasts taking into account a more resilient labor market in the US and the aggressive reaction function of central banks.
US consumer price inflation eased only modestly to 8.3% in August amid continued pressure on core prices, leaving the Federal Reserve (Fed) on high alert for the moment. A third hike of 75 basis points in the key rate is likely on September 21, followed by 50 basis points in November and 25 basis points in December, which would bring the final Fed rate to 4% (against our forecast). previous 3.25%). As growth and employment begin to deteriorate by the end of the year, we believe the Fed will stop raising rates in 2023, but not cut them again.
A delay in the Fed’s pivot could allow other central banks to tighten policy for longer, especially in Europe where inflation has yet to peak.
We estimate that the European Central Bank (ECB) will make further rate hikes, bringing the deposit rate to 2.0% by the end of the year (from 1.50% previously) and that the National Bank Switzerland (SNB) will catch up more quickly to reach 1.25% (vs. 0.75% previously).