As expected, on Wednesday, the Federal Reserve raised the Fed Funds rate by 50 basis points. The Research Department at BBVA, for now, stick to their call for two 25bp rate hikes during the first quarter of next year, with the rate peaking at 4.75-5.00%.

Key Quotes: 

“Hawkish signs indicate that, although inflation is starting to show clear signs of easing, the Fed felt a strong need to reverse the recent decline or avoid a further easing of rates along the yield curve. Although explicitly questioned, Chair Powell avoided signaling that the Fed is uncomfortable with the easing of financial conditions that has occurred after the positive inflation data of recent months, as he only indicated that the Fed’s “focus is not on short-term moves but on persistent moves”, which could likely mean that the Fed expects financial conditions to reverse its path or at least not continue easing.”

“For now, we stick to our call for two 25bp rate hikes in 1Q23, with the fed funds rate peaking at 4.75-5.00%.”