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What to Expect? – FOMC September 20-21, 2022 Meeting

Steve Skancke
September 20, 2022

The August inflation data won’t change the Fed’s hawkish mood on combating inflation, but broadening disinflationary pressure pushing inflation expectations back towards normal levels might be enough to keep the Fed on track with a 75 bp rate increase.


  • Fed Chair Powell has maintained his hawkish tone saying: “we need to act now, forthrightly, strongly as we have been doing”. Futures markets have been expecting a 75 bp increase in the Fed Funds rate, but understandably are anxious that it could be more.
  • Although gasoline prices were down 11% m/m in August, the big surprise was that core CPI inflation was up 0.6% m/m in August and up to a new cyclical high of 6.3% over the past 12 months.
  • The continued drop in gasoline prices and easing food inflation, however, will weigh on headline CPI over the next month or two. Supply shortages have normalized, and there are signs that core goods inflation could fall back to 2% before the end of the year, from 7% in August.
  • The rapid increase in rents recently is also showing signs of slowing, and new data are showing falling airfares, hotel rates and longer-term inflation expectations, which reduces the risk of a price-wage spiral.
  • The Fed is already at the “neutral rate” of interest and a 75 bp increase in the Fed Funds rate will be a restrictive policy. A higher rate would be an unnecessary risk to breaking an economy that so far is bending successfully in the direction the Fed is pushing.

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