Has the US Federal Reserve entered a new major tightening cycle?

The Federal Reserve recently raised interest rates for the first time in three years, prompting speculation about whether more rate hikes are on the horizon. While the majority of policymakers indicated a further increase this year, the question is now shifting from whether the Fed will hike rates, to how far the central bank will go to combat persistent inflation.

Fed officials have yet to bring inflation back down to their 2% target, and recent geopolitical factors, such as the Iran war and rising oil prices, have added new pressure to the economy. Despite the Fed's higher-for-longer policy posture, they do not anticipate additional rate hikes next year before lowering the federal funds rate to 3.9% by 2028 and 3.6% in 2029.

However, the Federal Open Market Committee's dot plot, which shows individual member projections, should be viewed skeptically as it has a poor track record and can mislead markets. Fed Chairman Kevin Warsh has taken a cautious approach to forward guidance, stating he is not into the forward-guiding business.