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FED Preview: Forecasts From 4 Major Banks

The US Federal Reserve will announce its monetary policy decisions on Wednesday, January 26 at 19:00 GMT, and as we get closer to the release time, here are the expectations as forecast by analysts and researchers of 4 major banks.

Wells Fargo


“We highly doubt the FOMC will start the tightening process and there will not be an update to the summary of economic projections. Instead, we expect Chair Powell to use the meeting to signal the fed funds rate could be lifted at its next meeting on March 15-16. Such a hint could come by indicating that the labor market is close to maximum employment, the remaining criteria the Committee has laid out for lift-off. We expect the statement and Chair Powell in his press conference to downplay the temporary slowdown in growth due to the most recent wave of the virus and highlight the overall strength of the labor market. Following a rate increase in March, we look for the FOMC to raise rates 25 bps per quarter through the third quarter of 2023, bringing the fed funds rate to 1.75%-2.00%. Any new clues regarding the details of balance sheet run-off will be important since several open questions remain regarding the timing, pace, and composition of the Fed’s intended balance sheet reductions.”

TDS


“A likely hike in the funds rate in March has been well communicated, so a ‘prepare for liftoff’ signal should not surprise anyone. More important for markets will be any guidance on the likely pace of tightening, via QT as well as the funds rate, in the year/years ahead. We don’t expect definitive signals, unfortunately, and the result could be mixed messages. The chairman will likely talk about ‘normalization,’ consistent with making policy less accommodative rather than restrictive, but he will undoubtedly also express a willingness to move more aggressively if needed.”

Citibank


“Our base case is that the Fed will lift-off policy rates in March, hike four times in 2022 and begin balances sheet reduction in July. There are a number of items to watch this week – (1) possible signaling a March rate hike; (2) what about a 50bp first hike? – highly unlikely but Chair Powell and the committee probably will not rule it out; (3) Path of rate hikes; (4) timeline on stopping asset purchases; (5) timeline on balance sheet reduction; (6) No longer a ‘challenging time’ – it is hard to call a 3.9% unemployment rate a “challenging time” for the US economy. The Fed may remove this language in January or another upcoming meeting.”

TDS


“A likely hike in the funds rate in March has been well communicated, so a ‘prepare for liftoff’ signal should not surprise anyone. More important for markets will be any guidance on the likely pace of tightening, via QT as well as the funds rate, in the year/years ahead. We don’t expect definitive signals, unfortunately, and the result could be mixed messages. The chairman will likely talk about ‘normalization,’ consistent with making policy less accommodative rather than restrictive, but he will undoubtedly also express a willingness to move more aggressively if needed.”

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