abrdn: Fed is still too optimistic
abrdn: Fed is still too optimistic
Luke Bartholomew, Economist at abrdn, comments on the Fed's interest rate decision yesterday:
'As expected, the Fed slowed the pace of its hiking cycle, with a 50bps increase. However, the broader signals were hawkish, with the dots showing a more restrictive path of policy through the forecast horizon. We continue to see a lower terminal target rate range of 4.75%-5%, as we think the economy will be in recession before the Fed can push rates much higher. However, near term demand side resilience, resulting in a later onset of recession, would create upside risk to our rate forecasts.
The Fed’s economic projections were more downbeat, with higher inflation and lower growth. While the forecasts increasingly recognise that 'immaculate disinflation' is not possible, with a prolonged period of economic pain necessary to restore price stability, we think they are still too optimistic.
As such, we continue to expect a much more significant rate cutting cycle from late 2023 than envisioned by the Fed or priced by markets.'