Global Banks Expectations For Fed Rate Hikes In 2022

Expectations For Fed Rate Hikes in March

Following hotter-than-expected inflation data increased pressure on the Federal Reserve to adopt a harder stance against soaring prices, major investment banks have drawn in a robust run of interest rate hikes for 2022.

Consumer prices in the United States rose at their quickest rate since the early 1980s, fueling market anticipation that the Fed will hike rates by 50 basis points at its March 15-16 meeting.

Consumer prices in the United States rose 7.5 percent year over year last month, exceeding economists’ expectations of 7.3 percent and marking the largest annual gain in inflation in 40 years, adding to pressure on the Federal Reserve to raise rates more rapidly.

The Fed’s current effective fund rate objective is 0-0.25 percent.

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As the Fed prepares to boost pandemic-era rates, leading global investment firms have forecasted how far and how fast rates will rise:

Citi now forecasts 150 basis points of tightening this year, beginning with a 50 basis point hike in March and continuing with four quarter-point hikes in May, June, September, and December. 

Credit Suisse now anticipates the Fed to raise rates by a total of 175 basis points this year, beginning with a 50-basis-point move at the March meeting. 

Beginning in March, Societe Generale predicts five 25-basis-point rate hikes this year.

Morgan Stanley believes that 125 basis points of policy tightening this year is “reasonable,” with four 25-basis-point rate rises and a 25-basis-point fed funds equivalent runoff of the Fed’s balance sheet. The timing of rate hikes is largely data-dependent.

The Fed is expected to raise rates by 25 basis points at each of the remaining seven meetings this year, according to BofA Global Research, which is unchanged from its previous forecast. It did, however, say there’s a chance of a 50-basis-point rise at the Fed’s March policy meeting.

On January 28, J.P.Morgan said it expected five rate hikes in 2022, up from four previously predicted.

The Fed will raise rates by 25 basis points five times this year, according to Barclays, up from three hikes previously projected.

Goldman raises its Fed hike prediction to seven hikes in 2022

From a previous assumption of five hikes, Goldman Sachs has increased its prediction to include seven straight 25 basis point rate hikes at each of the remaining Federal Open Market Committee (FOMC) meetings in 2022.

HSBC’s US analyst Ryan Wang stated the bank currently anticipates the Fed to front-load rate hikes more than originally expected, with a 50-basis-point hike in March and four more quarter-point hikes in 2022. According to HSBC, this will increase the government funding target range from 0-0.25% to 1.50-1.75 percent.

In a note, Wang said that this would translate to 150 basis points in rate hikes this year, versus our earlier projection of three 25 basis point rate hikes.

In a daily market note, Deutsche Bank said its economists had upgraded their Fed call to a 50 basis point hike in March, followed by five further 25 basis point raises in 2022, with a hike at all save the November meeting, for a total of 175 basis points in 2022.

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