Ahead of November FOMC, big banks saw 4.875% peak Fed rate target

By Michael S. Derby

(Reuters) – Wall Street’s biggest banks told the Federal Reserve ahead of its November policy meeting that they had increased their estimation of how far the central bank would raise rates.

The banks, called primary dealers, said the Fed would raise its overnight target rate to a peak of 4.875% by March, according to a survey released Friday by the New York Fed.

The banks were surveyed in October ahead of the Nov. 1-2 Federal Open Market Committee meeting. The peak federal funds rate banks reported in the dealer survey ahead of the September Federal Open Market Committee stood at 3.88% by the end of this year.

At the Fed’s November meeting, it raised rates by 75 basis points, to between 3.75% and 4%, in a move that was widely expected. The Fed has been moving rates up aggressively this year to combat the highest inflation seen in 40 years.

A number of officials have also said the central bank may have to raise rates to a higher final destination point relative to their earlier expectations. At their September policy meeting the Fed penciled in a 4.6% federal funds rate for next year.

The Fed will next update its interest rate and economic forecasts at the policy meeting on Dec. 13-14. The banks surveyed by the New York Fed serve as counterparties to central bank market interventions and underwrite Treasury debt auctions.

The survey said that the median response of respondents sees the Fed’s ongoing drawdown in its holdings of bonds ending in the third quarter of 2024.