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Fed getting close to peak in rates

We expect the Fed to downshift to a 25bp rate hike at the upcoming FOMC meeting, taking the fed funds rate to between 4.50% and 4.75%, but there could be one last hawkish sting in the tail. We expect the statement to maintain the language that “ongoing increases” (emphasis on the plural) in rates will be required and, to counter the recent easing in financial conditions, forward guidance could be added that commits to leaving rates at elevated levels for some time. Despite the Fed’s current hawkishness, however, we expect only one additional 25bp rate hike in March and anticipate that a faster-than-expected decline in inflation will persuade it to start cutting rates later this year.

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