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4 Nov 2022

Econ Digest

The FOMC meeting on November 1-2, 2022: The Fed raised its policy rates by 0.75%...What factors will affect the next rate hike?

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        The Federal Reserve (Fed) approved a fourth 0.75% interest rate increase at the Federal Open Market Committee (FOMC) meeting held on November 1-2, 2022, bringing the fed funds rate range to 3.75-4.00%, which is the highest level in almost 15 years. The Fed also iterated the need to continue raising rates until it achieves its target of inflation control. It is still too soon to expect the Fed to pause rate hikes in the near term, but the Fed has signaled its slowing of the pace of rate hikes in future meetings, as appropriate.

        KResearch expects that if the U.S. inflation rate weakens in the face of a slowing U.S. economy and labor market, the necessity for the Fed to raise its policy rate by 0.75% will be reduced, prompting the Fed to likely slow rate hikes by 0.25-0.50% at its next meeting in December and meetings scheduled early next year. According to the Fed’s latest statement, the Fed may not stop raising rates in the near future, which would prompt the Fed’s policy rate to peak at over 5.00% next year, and the Fed is likely to keep its policy rate steady at such level for longer than previously anticipated.
    
        The Fed’s aggressive rate hikes will increase the possibility that the U.S. economy will fall into a technical recession in 2023. As for the impact on the financial market, as the market has already priced in the Fed’s aggressive stance, the U.S. dollar is not expected to strengthen further unless there are factors that surprise the market going forward, of which the results of future meetings should be monitored.

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