ICYMI: Fitch sees Fed hiking to 4.25% in December, says US credit outlook still benign

Fitch Ratings has projected that the Federal Reserve will raise its policy rate to 4.25% by December, while maintaining that the outlook for US credit quality remains benign. The forecast implies further tightening ahead, which would widen the policy rate's differential against other major central banks and support the dollar through rate-differential channels. A higher terminal rate also feeds into inflation repricing, pressuring front-end Treasury yields and the rate-sensitive segments of the curve, while the benign credit assessment tempers concerns about default risk and supports investment-grade spreads. Front-end Treasuries and dollar pairs are most directly exposed to revisions in Fed path expectations, while high-yield credit is comparatively insulated given the stated benign outlook. Traders will focus on the next CPI and core PCE prints, as any upside surprise would reinforce the case for the Fed reaching the projected level and could extend the move in short-dated yields.

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