SEI, an overseer of $1.3 trillion in assets, sees a likelihood that the Federal Reserve’s hiking cycle will end at a level that leaves interest rates twice as high as they are now.
In the run-up to Wednesday’s policy announcement by the Federal Reserve, SEI, an overseer of $1.3 trillion in assets, sees a likelihood that the central bank’s hiking cycle will end at a level that leaves interest rates twice as high as they are now.
For now, the broader financial market has remained focused on the likelihood that Wednesday’s rate hike will be 75 basis points, plus the slim chance it might be a jumbo-size full-percentage-point hike — which would push borrowing costs into a range that’s at or above 3%. Generally speaking, investors have yet to fully wrap their heads around the risk of a 5% level by next year.
Some — like Paul Ashworth, chief North America economist for Capital Economics — still see the possibility that the Fed could shift back to smaller increments of hikes after Wednesday’s widely expected move, under the assumption that inflation should ease soon. However, inflation has proven to be stubbornly persistent, and if the Fed pencils in further rate hikes for 2023, that could easily push the fed-funds rate target above 4.5%.
SEI isn’t alone in its views. U.S. economists at Deutsche Bank, Wall Street’s most pessimistic bank, expect the Federal Reserve to end its rate-hike campaign at 4.9% in 2023’s first quarter. Meanwhile, strategist Philip Marey of Dutch financial-services company Rabobank expects the fed-funds rate to peak at 5% next year, and doesn’t expect the Fed to pivot from its rate stance before 2024.