Fed: End of Money Printing Brrrrr – (At Least) Four 25bp Rate Hikes this Year and QT in September
Key takeaways
At the upcoming January meeting, we expect the Fed to indicate that the first rate hike is likely in March if the economy develops in line with expectations, supported by the tight labour market and still very high inflation.
It is one of the interim meetings without updated projections or dots.
We have changed our Fed call now expecting four 25bp rate hikes this year (in March, June, September and December, up from three previously) and still four rate hikes in 2023. We expect the Fed to start reducing the balance sheet from September.
Given the combination of a strong economy and high underlying inflation, we see risks as skewed towards more, not less, tightening. If this scenario plays out, the Fed is likely to hike 25bp at each meeting, not skipping interim meetings.
Fixed Income: We have lifted our target to 2.25% for 10Y UST.
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