As expected,  the Federal Reserve hiked rates by 75bp, taking the target range for the federal funds rate to 2.25-2.5%. In the statement they acknowledge that "recent indicators of spending and production have softened", but that "job gains have been robust". In addition, they remain "highly attentive to inflation risks" and anticipate that "ongoing increases in the target rate will be appropriate". Here are a few more quotes:

• "No one can be sure on whether we can achieve a soft landing."
• "Balance sheet reduction is working fine, markets have accepted it, and should be able to absorb it."
• "Balance sheet reduction will be picking up steam."
• "Broader financial conditions have tightened a good bit."
• "We're going to get our policy rate to level where we are confident inflation will come down to 2%."
• "We'll be watching financial conditions to see they are appropriately tight."

So where do we go from here? The probability is for a 50bp in September. This gives us almost 2 months until their next meeting on the 21st September and during that time, we'll have seen two more inflation reports, two more jobs reports and the Fed's Jackson Hole symposium. Clearly, a lot can happen in two months! 

In terms of forward guidance, Jerome Powell said that the central bank would decide monetary policy on a “meeting by meeting basis” and would not provide forward guidance as before. In addition, he said that any future rate hikes will depend on the data.

In the meantime, the Fed’s base case remains a soft landing even though there is some uncertainty around this. Indeed, this looks like it will be a real challenge to achieve in the current circumstances. The immediate priority is getting  inflation under control, and the probability for a 50bp hike at the September FOMC is very strong with further 50bp and 25bp hikes before the end of the year.

The ECB's Announcement
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• All three key ECB interest rates were increased by 50bp.
• Forward guidance was changed to a “meeting-by-meeting” approach.
• A Transmission Protection Instrument (TPI) was introduced.

The decision to hike by 50bp took some by surprise. In fact, since the June meeting the ECB had repeatedly confirmed its ‘intention’ to hike rates by 25bp in July, before accelerating the hiking pace from September onwards. 
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Today's rate hike isn't going to bring down inflation in the short term, not even on the demand side of the economy. In fact, the demand side will react significantly more to a recession, if indeed, a recesssion is looming. The objective of the hike and any further potential hikes, is to bring down inflation expectations. There is also the issue of ECB's damaged reputation as an inflation fighter and today's announcement helps to repair this. Does this mean that the ECB is more concerned about their credibility over being predictable?

Forward Guidance
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Cast your mind back to the end of last year and you may remember the ECB president Christine Lagarde giving her own personal forward guidance that she was not expecting rate hikes in 2022. Fast forward to the June 2022 meeting where a 25bp hike was the intention for July, and now we see that this was wrong. Perhaps forward guidance is no longer a useful tool for central banks, particularly in times of high uncertainty. Perhaps it would be pragmatic to take any further forward guidance from the ECB about rate hikes beyond September, with a  pnch of salt!