Bank of America Global Research discusses its expectations for this week's FOMC policy decision on Wednesday.

"We expect the Fed to raise its policy rate by 75bp in September to 3.0-3.25% and project the target range for the federal funds rate to reach 3.75-4.0% by year-end. This would be 50bp higher than in June. We also look for the median member to project one additional 25bp hike in 2023, bringing the new terminal rate to 4.0-4.25%.

In the updated FOMC statement, we think the Fed will likely be clear that monetary policy will be moving into restrictive territory. In addition, we think the Fed will want to send the signal that a restrictive policy stance will be needed "for some time" in order to guard against market expectations of a quick pivot to rate cuts once inflation has begun to move lower," BofA notes.

"With markets now generally looking for 75bp from the Fed, such a rate hike would likely by itself may be less directly impactful for the dollar, although of course the additional messaging will be crucial. For FX, the risks are ultimately that the USD can remain strong for longer and could even get stronger," BofA adds.

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