Fed Not Expected To Announce Balance Sheet Reductions Next Week

A rate hike by the US Fed next week is broadely expected, even despite the recent turmoil across financial markets. According to analysts at Wells Fargo, the chance of a 50 bps interest rate hike “has fallen tremendously given the souring outlook to growth amid higher commodity prices.”

Economists believe it would take a combination of a rapprochement between Western countries and Russia along with the February CPI beating already lofty expectations for the FOMC to surprise markets with a 50 bps move.

Russia’s invasion of Ukraine has added even more uncertainty to the US monetary policy outlook. Despite the geopolitical developments, economists still expect the FOMC will hike the federal funds rate by 25 bps at the conclusion of its March 15-16 meeting.

A near-complete labour market recovery and inflation that is well-above the central bank’s target make the case clear for beginning the tightening cycle.

Economists would be very surprised by a 50 bps hike or no hike at all, but there are tail-risk scenarios where these possibilities could become reality.