US Fed holds its course in inflation fight with +50 bps rate hike

<p>Kia ora,</p><p>Welcome to Thursday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.</p><p>I'm David Chaston and this is the International edition from Interest.co.nz.</p><p>Today we lead with news that markets have reacted to the latest US Fed policy review which wasn't dovish enough for them.</p><p>All eyes have been on the US Federal Reserve who today unanimously <a href="https://www.federalreserve.gov/newsevents/pressreleases/monetary20221214a.htm" target="_blank"><strong>raised rates by +50 bps</strong></a> as expected to 4.5% which is a 15 year high. That increase may be less than the +75 bps in November, but they now say they will keep going to take this policy rate to about 5.1% in 2023, which is higher than previously indicated. They are trying to slow the rate of increase, as inflation slows, but not lose sight of the fact inflation is well embedded in expectations still, and well above its target range still. A soft landing would be 'nice', but inflation is the declared enemy.</p><p>They have a friend in a strong US labour market that has stayed resilient. That labour market strength is expected to wane, but neither the markets nor them know how-or-when. This strength has proven many pundits wrong for a long time now.</p><p>2023 rate changes may be far less regular than what we got in 2022, and mostly of the +25 bps variety. They are now not only out of their pandemic 'abnormal' zone, they are through 'normalisation' and out the other side into a new abnormal on the high side.</p><p>In other news, after a month of steady declines, American mortgage interest rates rose slightly last week, and <a href="https://www.mba.org/news-and-research/newsroom/news/2022/12/14/mortgage-applications-increase-in-latest-mba-weekly-survey" target="_blank"><strong>mortgage applications</strong></a> did too. Perhaps the American housing market has reached a bottom for the year?</p><p><a href="https://www.esri.cao.go.jp/jp/stat/juchu/2022/2210juchu-1.pdf" target="_blank"><st