US Fed Rate Projections Aggressive, Say Experts

The Federal Reserve delivered a interest rate hikes that were in line, but its hawkish comments were blunt and clear on the stance and what it will do to tame painfully high inflation. Experts are warning that this is aggressive and may lead to slower growth, higher unemployment and potentially a recession.

Ritika Chhabra- Economist and Quant Analyst, Prabhudas Lilladher Pvt Ltd, "The Fed raised the interest rates by another 75bps yesterday, as expected. This is the third 75bps hike this year. With the latest hike, the Fed fund rate (FFR) now stands in the range of 3.0%-3.25% and is highest since January 2008.

The FOMC revised the median FFR at the end of 2022 up by 100bps to 4.4% from 3.4% in June, indicating a cumulative rate hike of 125bps over the next 2 FOMC meetings this year. For 2023, the median FFR is revised up 4.6% vs. 3.8% in June, suggesting no rate cuts in 2023. These projections are much more aggressive than what investors had been pricing earlier. The Fed chairman, Powell continued his hawkish stance from the Jackson Hole in August meeting. Powell reiterated that the central bank's main goal is to bring the inflation under target range and for that the interest rates need to be in 'restrictive' territory for longer time period."

Short-term rates at a level the Fed is now envisioning will force many Americans to pay much higher interest payments on a variety of loans than in the recent past.
Stock markets across the globe plunged, particularly in Asia. The Sensex was down more than 300 points, while the rupee plunged to a new low of 80.28 to the dollar. Should recessionary like conditions prevail in the US, companies exporting IT and software services would be the hardest hit. Stocks like Infosys have now already fallen to a new 52-week low and there are risks of a further downside.