Fed Preview: Forecasts from 5 major banks

If markets are expecting a 25 basis point hike and eventually a 50 basis point hike is announced, that would be somewhat of a surprise. So, markets would react … Read: What Do Markets Expect From First FOMC Decision in 2023?

The US Federal Reserve will announce its monetary policy decision on Wednesday, February 1 at 19:00 GMT and as we get closer to the release time, here are the expectations as forecast by analysts and researchers of 16 major banks. 

BofA

“We look for the Fed to raise the target range for the federal funds rate by 25 bps to 4.50-4.75%. The message: Still cautious about inflation. While the Fed appears to favor another downshift in the pace of rate hikes, communication during the intermeeting period suggests policymakers have not changed their view on where the terminal funds rate is likely to end up or the view that inflation pressures will subside slowly. In other words, passing peak inflation is welcome and policymakers appear to have increased confidence that inflation is on a path lower, but the Fed is not yet convinced that inflationary pressures will dissipate quickly.”

Wells Fargo

“We expect the FOMC will raise the fed funds target range by 25 bps. This would be the smallest increase since the very first hike of the tightening cycle in March 2022. Ultimately, this meeting should signal that the Fed’s work on this hiking cycle is nearer completion but not yet done. Our current expectations are for 75 bps more cumulative tightening, bringing the target range for the fed funds rate to 5.00%-5.25%. If our forecast is correct, then we would still have two more 25 bps rate hikes at the March and May FOMC meetings.”

Danske Bank

“The Fed looks keen on raising Fed funds rate to 5%. We expect a 25 bps rate hike followed by another 25 bps hike in March and May, respectively. A turn in the business cycle and drop in short-term inflation expectations pave the way for rate cuts next year, but the neutral rate is higher than before the crisis. We think the trajectory for Fed funds discounted by markets looks broadly fair, but we see slight upside to the front end of the curve and in particular 6M-2Y.”

Westpac

“Coming into the Jan/Feb meeting, the market believes US inflation is well on its way back to the FOMC’s target, leaving the Committee with little more to do. indeed, it could be argued that, were the FOMC not as resolute in their determination to remove all inflation risks, the market could have seen this meeting as the last move – so confident participants have become in the US inflation outlook. Since the CPI peaked in June 2022, we have anticipated a rapid easing in pressures and risks. But, we also recognise it will likely take until March for the FOMC to feel confident to stop. Hence we expect this cycle to end with 25 bps hikes in Feb and Mar.”

Barclays

“We expect the FOMC to again slow the pace of hikes, raising the target range by 25 bps to 4.5-4.75%. Such a move would be in line with pre-blackout FOMC communications and supported by accumulating evidence that inflation and wage growth are decelerating, and signs of a slowing economy. A key challenge for the FOMC will be to execute its transition to smaller rate hikes without furthering expectations that an end to its hiking cycle is imminent. The post-meeting press conference should be particularly interesting in that respect. We expect Powell to signal a peak rate of 5.1% in 2023, possibly by mentioning that last December’s dot plot by the FOMC remains appropriate.”