July FOMC Recap

The Federal Reserve raised interest rates by 75 basis points today, bringing the Fed Funds rate to 2.25-2.50%. While the hike was anticipated by the market, Powell's description of these levels as "neutral" and the Feds statement acknowledging a slowdown in consumption imply a new monetary policy regime: moving away from "expeditiously" reaching neutral to a more "data dependent" and flexible approach.

Key Views

  • Consensus Real GDP forecast for Q3 is 2.1% YoY. Our view is somewhere between 0.8% and 1.3%, with ISM Manufacturing PMI averaging below 52.

  • Our inflation outlook remains elevated, we see inflation between 7.5% to 8.0% in Q3.

  • A stabilized equity multiple should allow earnings to drive the stock market, and we expect US equities (SPX) to end Q3 around 4300.

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