DAVY VIEW

The Fed’s ‘dot-plot’, published overnight, clearly took markets by surprise, pointing to the Fed funds rate rising to 4.5-4.75% in 2023. Furthermore, the Fed now sees a period of stagflation, with just 1.2% GDP growth forecast through 2023 accompanied by 3.1% core PCE inflation. Markets also look to be under-pricing the likelihood of a 75bps hike today from the Bank of England, with the MPC likely keen to bolster its credibility; UK CPI inflation is now at 9.9% – the highest rate in the G7 economies.