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Ahead of the Federal Open Market Committee (FOMC) announcement on the monetary policy and the subsequent Jerome Powell speech, former President of the Federal Reserve Bank of Atlanta Dennis Lockhart predicted that the US Federal Reserve would eventually go for a transition by the end of the year 2023.
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The US Fed Pivot
While the market expectation that the Fed will pause the rate hike spree this time around is uncontested, it is the outlook for the following FOMC meetings that will be closely watched. US Fed Chair Jerome Powell speech would be predominantly based on the central bank’s view on whether the inflation target path is dovish or hawkish. In this context, Lockhart said the Fed will likely be more neutral, speaking to CNBC. More importantly, he predicted that the much awaited Fed pivot may be around the corner.
“I expect the Fed to stay higher for longer, but expect a transition by the end of the year. On core inflation, the narrative is playing out, but not on a path to 2% objective.”
Lockhart added that the Fed will be cautious when it comes to relaxing the monetary policy as the inflation target is yet to play out on the target path. The central bank officials have been maintaining that there will not be any change to the 2% inflation target. This is despite wider consensus that the economy is a long way to reach the inflation target.
Rate Hike In Upcoming FOMC Meets?
According to the CME FedWatch Tool, respondents state that there is a 28.9% likelihood that the central bank will raise the Federal target rate at the November 1, 2023 FOMC meeting. In the following meeting on December 13, 2023, the repsondents registered a 35.4% likelihood of rate hike from the current target rate of 525-550 bps.
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