FED Preview: Forecasts From 4 Major Banks

The US Federal Reserve will announce its monetary policy decisions on Wednesday, March 16 at 18:00 GMT, and as we get closer to the release time, here are the expectations as forecast by analysts and researchers of 4 major banks.

JP Morgan

“The Fed is gearing up to combat rising price pressures and is set to raise interest rates by 0.25%. We anticipate the Fed will hike less aggressively than markets are currently pricing given the aforementioned growth concerns, but the persistence and breadth of hotter inflation may result in a more extended hiking cycle than was originally penciled in.”

ING

“The Fed is set to raise interest rates with the consensus firmly settled on a 25bp move. It may not be a unanimous decision with a strong likelihood that two Federal Open Market Committee members will vote for a more aggressive 50bp hike given inflation is already close to 8% and is soon set to test 9% at a time when the economy is growing and creating jobs in significant number. However, the uncertainty created by Russia’s invasion of Ukraine is likely to lead to the majority of the committee backing Powell’s motion. They will also be releasing their updated dot plot diagram of individual projections for interest rates. Currently, the median is for three 25bp rate hikes in total by year-end, but it is likely to end up being much closer to the six hikes markets are fully discounting after this update. However, the Fed is likely to emphasise a need to be ‘nimble’ given the uncertain geopolitical backdrop while acknowledging that the surge in commodity prices not only poses an upside risk for inflation but also a downside risk for growth.”

TDS

“Fed Chair Powell all but gave a green light for a 25bp liftoff in March during his testimony before Congress. The current state of the Fed’s dual mandate supports the decision to liftoff. We expect the chairman to also convey the message that despite the ongoing conflict between Russia and Ukraine, the Fed is ready to continue with its process of monetary policy normalization during the rest of the year. The market is well priced for tightening in 2022 but underpriced for 2023. We think risks skew in the USD’s favor, particularly with USD/JPY.”

Deutsche Bank

“Before the invasion we thought a 50bps was likely this week and the problem is that by delaying such a move they may have to do more later. With regards to QT, we anticipate that the Fed will use this upcoming meeting to announce caps determining the maximum monthly runoff and, in May, announce QT that would begin in June. We think we will see USD800bn of runoff this year and an additional USD1.1tn drawdown in 2023, a cumulative reduction we think is roughly equal to between three and four rate increases.”