FOMC's fight against inflation will come at a significant cost to the economy – Westpac

The FOMC and Chair Powell delivered a hawkish approach to policy in September, raising the fed funds rate by 75 bps and signalling another 150 bps of tightening to the end of this cycle. In the view of economists at Westpac, FOMC’s fight against inflation is set to come at material cost.

Fed funds rate to a peak at 4.625% in January 2023

“Chair Powell and the FOMC look set to hike rates another 150 bps before this cycle concludes, lifting the fed funds rate to a peak of 4.625%, with a likely timing of January 2023.”

“Their fight against inflation will come at a significant cost to the economy, particularly as the fed funds rate is expected to remain on hold through 2023.”

“We anticipate an output gap of 4% by end-2024 and for the unemployment rate to be 2ppts higher, containing price pressures and allowing the FOMC to ease policy in 2024.”