WOOD Flash – US macro: Fed sticking to its hawkish message

The FOMC at the Fed has decided to raise the policy rate by 50bps, to 4.25-4.50%, as we expected, and kept a hawkish tone, consistent with interest rates rising up to 6.00-6.50%. Chairman Powell welcomed the softer inflation prints, but stressed that a balanced labour market is what is really required to pull inflation sustainably back to the target. The labour market is softening far more slowly than the Fed expected; and, amidst the trade-off between a delay in attaining the inflation target and inducing higher unemployment, we believe that the Fed is more likely to choose the latter. Going forward, the pace of the tightening may slow further, but the rapid slowdown of inflation in the coming months will not be enough to end the tightening cycle. We stand by our call for US 10-year treasuries yields trading sideways in the near term and falling in 2023E.