Strategists from the world’s biggest investment banks rushed to alter their Federal Reserve rate calls on Thursday after policymakers stressed at a policy meeting that it would tighten policy to fight inflation .
The Federal Reserve said Wednesday it would likely raise interest rates in March and reaffirmed its intention to end its bond purchases that month, surprising investors who had already braced for four rate hikes. rate until the end of the year.
Deutsche Bank strategists now expect policymakers to raise interest rates at every meeting from March to June, then return to a quarterly tightening cycle from September totaling five rate hikes this year.
Analysts at Nomura, Japan’s largest brokerage and investment bank, said they expect the US Federal Reserve to raise its benchmark rate by 50 basis points (bps) in March.
Analysts at TD Securities, meanwhile, said they now expect four 25 basis point rate hikes, down from three. They also expect the Fed to begin shrinking its balance sheet by nearly $9 trillion in May, compared with a previous forecast calling for the central bank to do so in September.
Following Wednesday’s meeting, Fed Chairman Jerome Powell said a decision would be made in the coming months on when to start cutting government bonds and asset-backed securities. central bank mortgages.
BNP Paribas expects no less than six 25 basis point hikes in 2022 compared to the previous four, and expects the fed funds target range to be between 2.25 and 2.50% at the end of the year. end of 2023, 25 basis points higher than a previous forecast.
“Our new base case for six hikes this year poses challenges to our bullish outlook for US equities,” the French bank’s strategists said in a note.
Powell did not rule out such a move when asked about it after Wednesday’s Fed meeting.
“He repeatedly seemed to differentiate the coming hike cycle from the last time the Fed normalized its key rate at a roughly quarterly pace,” Nomura analysts said in a note.
“We now expect a 50 basis point rate hike at the March (Fed) meeting, followed by three consecutive 25 basis point hikes in May, June and July,” they said, adding that a another 25 basis point hike was expected in December.
Fed funds futures, which track short-term rate expectations, now predict nearly five rate hikes of 25 basis points each this year, down from four hikes expected before Powell’s press conference.
Some major investment banks like Goldman Sachs and HSBC are sticking to their rate forecasts of four and three rate hikes respectively, betting that the recent sell-off in the markets will cause financial conditions to tighten.
“The interplay of Fed policy, financial conditions and growth outlook could make it difficult for the Fed to make back-to-back hikes, even if they seem like a natural forecast along the way,” the analysts said. from Goldman Sachs.
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