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Comments On Fed Policy by Mr. Vivek Goel, Joint Managing Director, Tailwind Financial Services

"The outcome of the latest Fed meeting was announced, taking the benchmark rates up by 50bps to 4.25-4.50%. This came after a series of 75bps rate hikes and while might be considered positive, was accompanied by the latest dot plot indicating Fed's expectation of a higher terminal rate at 5-5.25% as compared to September's below 5%.

This along with a hawkish commentary cautioning against not raising rates enough and that pace of hikes is not key rather focus is on finding an appropriately restrictive endpoint and the time needed to stay there.

We take note that despite the hawkish tone, market expectations of terminal rate indicated by futures is still below 5%. This would imply that markets are positive from previous couple of months' inflation data along with slowdown in growth leading to a quicker pivot from current stance.

This, however, may turn out to be an aggressive position with the Fed specifically discussing the need of more conclusive evidence on inflation than 2 months data along with willingness to accept a higher unemployment rate in 2023, all with the goal to achieve its 2% inflation target. Hence, this time it may be the case that Fed errs on the higher side of projected terminal rate instead of lower end”

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