The Fed is set to raise interest rates again next week. Here's what to look out for.



By Guest Contributor Michael • 26 Oct 2022 • 0 min read

The US central bank will announce its monetary policy decision on 2 November (US time). The market is pricing for the Fed Funds rate to rise to 4.5%-4.75% by end-2022 (from 3%-3.25% currently), but with a good chance for the pace of rate hikes to slow from the December meeting onwards.

Jerome Powell Fed

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Why is this important? 

The US rate cycle has an outsized impact on the global economy and could determine the chances of a recession in 2023. For the Singapore-based individual, this affects everything from mortgage rates, Singapore bond yields and the cost of funding for companies, given how closely Singapore’s interest rates follow the US. 

Chart 1: The market is pricing in 125bps rate hikes by end-2022, with a good chance for the pace of rate hikes to slow from December

Meeting probabilities
Source: CME (as of 25 October morning Singapore time)


Our detailed deep dive into the Fed’s recent commentary reveals debates around slowing the pace of interest rate increases, but a split on the ultimate level and timing to get there. We think that the November meeting could bring with it three key insights:

First, the Fed could communicate a potential path towards slowing the pace of rate hikes and then ultimately pausing at some point in 2023, while highlighting the need to keep interest rates at a high level for some time. 

“You do have to think about what the reasonable level (of interest rate) is… The goal is to move to “some meaningfully restrictive level” that will push inflation down… but it doesn’t mean that you go up forever.”  

James Bullard (20 October)


“I imagine we will have a very thoughtful discussion about the pace of tightening at our next meeting…. I anticipate additional rate hikes into early next year, and I will be watching the data carefully to decide the appropriate pace of tightening as we continue to move into more restrictive territory."

Christopher Waller (6 October 2022)


“Sometime next year, we are going to stop hiking rates…at that point, I think we should hold at a restrictive rate for a while to let monetary policy do its work.”

Patrick Harker (20 October 2022)


“It’s really challenging to step down right now… We are not there yet. (However) The time is now to start talking about stepping down. The time is now to start planning for stepping down.”

Mary Daly (21 October 2022)

Second, the Fed will highlight the importance of seeing inflation, and in particular core inflation coming off consistently and meaningfully as a precondition to ultimately pause.

“When talking about future inflation, it is most helpful to focus on measures of core inflation… A step-down in non-housing core inflation, if sustained over several months, would be a big improvement in inflation. While housing seems likely to continue contributing to high inflation in the near term, in the medium-term higher mortgage rates should slow the housing component of inflation as housing demand cools.”

Christopher Waller (6 October 2022)


“If we do not see signs that inflation is moving down, my view continues to be that sizable increases in the target range for the federal funds rate should remain on the table. However, if inflation starts to decline, I believe a slower pace of rate increases would be appropriate. To bring inflation down in a consistent and lasting way, the federal funds rate will need to move up to a restrictive level and remain there for some time. However, it is not yet clear how high we will need to raise the federal funds rate and how much time will pass before we begin to see inflation moving back down in a consistent and lasting way.”

Michelle Bowman (12 October 2022)


"But if we don't see progress in underlying inflation or core inflation, I don't see why I would advocate stopping at 4.5%, or 4.75% or something like that. We need to see actual progress in core inflation and services inflation and we are not seeing it yet."

Neel Kashkari (18 October 2022)


Third, the Fed doesn’t see any financial instability or negative international spillovers at the moment that can disrupt that trajectory, although it remains attentive to risks. 

“In considering what might happen to alter my expectations about the path of policy, I've read some speculation recently that financial stability concerns could possibly lead the FOMC to slow rate increases or halt them earlier than expected. Let me be clear that this is not something I'm considering or believe to be a very likely development. While there has been some increased volatility and liquidity strains in financial markets lately, overall, I believe markets are operating effectively.

Christopher Waller (6 October 2022)


“The Federal Reserve takes into account the spillovers of higher interest rates, a stronger dollar, and weaker demand from foreign economies into the United States, as well as in the reverse direction. We are attentive to the risk of further adverse shocks—for instance, from Russia's war against Ukraine, the pandemic, or China's zero-COVID policies.”

Vice Chair Lael Brainard (10 October 2022)


What does this mean?

We could see stronger evidence of disinflation as we move into 2023, which will give the Fed some space to pause on the aggressive interest rate hikes next year. 

For now, it seems that the Fed could overdo the tightening in the interim, and rates may go a little higher than where they are currently. 

There’s also some risk of a Fed-induced recession, which should be relatively shallow even if it happens. 

The FOMC’s voting composition could tilt a bit more hawkish in 2023

NameTitleVoting Status 2022Voting Status 2023Relative Hawk or Dove
Jerome PowellBoard of Governors, ChairVotingVotingNeutral
John WilliamsNew York Fed PresidentVotingVotingNeutral
Lael BrainardBoard of Governors, Vice ChairVotingVotingDove
Michelle BowmanBoard of GovernorsVotingVotingNeutral
Philip JeffersonBoard of GovernorsVotingVotingNeutral
Christopher WallerBoard of GovernorsVotingVotingHawk
Lisa CookBoard of GovernorsVotingVotingNeutral
Michael BarrBoard of Governors, Vice Chair for SupervisionVotingVotingNeutral
James BullardSt Louis Fed PresidentVotingNot VotingHawk
Susan CollinsBoston Fed PresidentVotingNot VotingNeutral
Esther GeorgeKansas City Fed PresidentVotingNot VotingDove
Loretta MesterCleveland Fed PresidentVotingNot Voting (Alternate)Neutral
Charles EvansChicago Fed PresidentNot Voting (Alternate)VotingNeutral
Patrick HarkerPhiladelphia Fed PresidentNot Voting (Alternate)VotingHawk (focuses on housing inflation)
Neel KashkariMinneapolis Fed PresidentNot Voting (Alternate)VotingHawk
Lorie LoganDallas Fed PresidentNot Voting (Alternate)VotingNeutral
Raphael BosticAtlanta Fed PresidentNot VotingNot Voting (Alternate)Neutral
Mary DalySan Francisco Fed PresidentNot VotingNot Voting (Alternate)Neutral
Tom BarkinRichmond Fed PresidentNot VotingNot Voting (Alternate)Neutral
Helen MuccioloInterim First Vice President, New York FedNot Voting (Alternate)Not Voting (Alternate)Neutral


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