(Bloomberg) - Wall Street’s biggest banks are at odds over how fast and far the Federal Reserve will raise interest rates after Chair Jerome Powell signaled it could be more aggressive than previously anticipated in tackling the strongest inflation in four decades.
With Powell declining to give specific guidance on what the Fed may do beyond indicating it will hike rates in March, economists and investors are making different judgments about the future, risking a rough ride ahead for markets.
Comments on Monday by four of Powell’s fellow Fed policy makers stressed their desire to avoid slamming the brakes too hard, which signaled little stomach for hiking rates by 50 basis points in March, but shed little extra light on their future plans.
Having previously coalesced around a forecast of four quarter-point increases in 2022, most now agree the Fed will raise rates in March by 25 basis points, although Nomura Holdings Inc. sees the first 50 basis-point salvo since 2000.
Differences then start to widen over:
-
How often the Fed will shift this year (three, four, five, six or seven times)
-
Which months it will move in after March
-
What it will do in 2023
-
Where the benchmark rate will eventually peak
There is also disagreement over when it will announce the reduction of its massive holdings of bonds, although many economists have pulled forward their date for when that happens.
What Bloomberg Economists Say
“Our baseline is for the Fed to hike five times, each 25-basis points, this year, and balance sheet runoff to begin in July. Our in-house rule for the Fed’s reaction function flags an upside risk for a 50 bps-hike in March followed by five 25-bps hike in the rest of the year.”
-- Anna Wong, chief U.S. economist
A weekend report from economists at Goldman Sachs Group Inc. highlighted the difficulty in predicting the Federal Open Market Committee.
“The FOMC could hike fewer than five times if market conditions change abruptly at some point or if the economy decelerates even more than our below-consensus forecast implies,” said the economists led by Jan Hatzius. “But it could also hike more than five times in 2022 if inflation remains high enough to make continuing to hike at every meeting a natural course later in the year as well.”
Here is a rundown of banks’ forecasts:
Bank of America Corp.
-
Seven quarter-point hikes this year, acting at every remaining policy meeting to end 2022 at a range of 1.75% to 2%
-
Balance sheet reduction to be announced in May
-
One hike each quarter in 2023, taking the benchmark to a peak of 2.75% to 3%
Nomura Holdings Inc.
-
A 50 basis-point hike in March, followed by quarter-point moves in May, June, July and December to end the year at 1.5% to 1.75%.
-
Balance-sheet runoff will be announced in May, effective June
-
Quarter-point moves in June and December of 2023
BNP Paribas SA
-
Six quarter-point hikes this year, at each remaining meeting except November, finishing 2022 at 1.5% to 1.75%
-
Balance-sheet runoff will be announced in June, effective July
-
Further increases in 2023 to end the year at 2.25% to 2.5%
Goldman Sachs Group Inc.
-
Five quarter-point hikes this year, coming in March, May, July, September and December, to reach 1.25% to 1.5%
-
Balance-sheet reduction announced in June
-
In 2023, three quarter-point hikes, followed by more in 2024 to reach 2.5% to 2.75%
JPMorgan Chase & Co.
-
Five quarter-point hikes this year, coming in March, May, July, November and December, to reach 1.25% to 1.5%
-
Balance-sheet reduction announced in June
-
Two hikes at the start of 2023 and then in June to end up at 2.5% to 2.75%
-
“If developments call for more tightening than in our forecast, we would first remove these pauses before penciling in 50bps moves,” economist Michael Feroli
Deutsche Bank AG
-
Five quarter-point hikes this year, coming in March, May and June, then quarterly in the second half, to reach 1.25% to 1.5%
-
Balance-sheet reduction announced in July
-
Three hikes in 2023 to leave the rate just above 2%
Wells Fargo Securities LLC
-
Five quarter-point hikes this year, coming in March, May, June, September and December, reaching 1.25% to 1.5%
-
Balance-sheet reduction announced in July
-
Another 75 basis points of rate increases in 2023
Citigroup Inc.
-
Five quarter-point hikes this year, coming in March, May and June, then quarterly in the second half, to reach 1.25% to 1.5%
-
Balance-sheet runoff will be announced in June, effective July
-
Quarterly hikes in 2023 to reach 2.25% to 2.5% at year-end
Morgan Stanley
-
Stuck with its call for hikes in March, June, September and December albeit with a “meaningful risk that at least some of these hikes would be delivered sequentially”
-
Balance-sheet runoff will be announced in July
-
Two hikes in 2023 to reach 1.5% to 1.75%
Standard Chartered Plc
-
Four consecutive quarter-point hikes forecast for March, May, June and July
-
Balance-sheet runoff will be announced in May
-
Two hikes in 2023 to end the year at 1.5% to 1.75%
Barclays Plc
-
Continues to forecast hikes in March, June and September, raising the benchmark to 0.75% to 1%
-
Balance-sheet runoff will be announced in May
-
Three more hikes in 2023 to reach 1.5% to 1.75%
(Updates with Fed comment in third paragraph. An earlier version corrected Nomura’s forecast to show five hikes in 2022)
By Simon Kennedy and Zoe Schneeweiss
