The Federal Reserve decided to double the pace of asset taper to $30 billion per month as expected. Economists at Nordea see more room for the Fed to turn further to the hawkish direction next year, which supports more curve flattening and a lower EUR/USD.
Fed to turn more hawkish next year
“The Fed expectedly decided to accelerate its tapering process, and is now set to conclude net purchases already by mid-March vs mid-June with the earlier pace. The dot plot was revised significantly higher, and the plot now shows three hikes for next year, a further three for 2023 and another two for 2024.”
“Given the Fed’s willingness to smooth out changes in communication and avoid abrupt changes, we see further room for the Fed to turn more hawkish next year, as we see more longer-lasting inflation pressures in the US economy.”
“We think that the market could price more hikes especially in 2023 and beyond, which should support further curve flattening and a lower EUR/USD.”