Fed Preview: Forecasts from 14 major banks, raising rates but with a huge asterisk related to the war

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 14 major banks. 

The Fed is widely expected to hike its policy rate by 25 basis points. Investors will pay close attention to the updated Summary of Economic Projections and FOMC Chairman Jerome Powell's comments on the policy outlook.

ANZ

“We expect the FOMC to revise up substantially its 2022 PCE forecasts. We also expect the Fed will raise rates by 25bps and raise the trajectory of the planned tightening path. Chair Powell will leave the door open for 50bp rate hikes if that is warranted by the data. We also expect some guidance from him on how the Fed will react to the unfolding tragedy in Ukraine. An update on balance sheet normalisation is expected. We expect the Fed to revise down its growth forecasts as higher inflation eats into real disposable income and company profits. However, we expect some offset from higher investment in energy production and renewables.”

Commerzbank

“The Fed will start the upcoming rate hike cycle with a cautious rate step of 25 basis points, and the target range for fed funds will then be 0.25% to 0.50%. If inflation does not calm down as expected in the coming months, the pressure on the Fed to increase the pace of interest rate hikes is likely to rise.”

Westpac

“At the March FOMC meeting, the first 25bp rate hike of this tightening cycle will be delivered to be followed by successive 25bp hikes at the May and June meetings. It is also likely that the Committee will give guidance after this meeting on their intentions with respect to balance sheet normalisation, which we expect to begin in the June quarter. The numerical forecasts and qualitatitve guidance provided by the Committee in March will also be important. In short, these views will guide on the Committee’s expected path into 2023 and beyond, including the timing and height of the cycle peak as well as the risks.”

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.”

Danske Bank

“We expect the Fed to raise its policy rate by 25 bps given the strong inflation pressures, which are likely to be further enhanced by the rise in oil prices. We had previously expected a 50 bps hike, but the uncertainty from the war in Ukraine will make the Fed a tad more cautious.”

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.”

RBC Economics

“Policymakers at the US Federal Reserve are expected to hike the Fed funds target range by 25 basis points – the first increase since 2019 as very low unemployment and firming inflation pressures offset increased geopolitical headwinds tied to the Russian invasion of Ukraine. We expect another four (equal-sized) hikes in 2022 to push the target range to 1.25% to 1.50% by end of year.”

NBF

“The Fed is set to implement its first interest rate hike since 2018, as it begins its battle against surging inflationary pressures. With a 25-basis point hike all but guaranteed, we’ll be more interested in the Fed’s policy stance going forward in light of the Russian invasion of Ukraine. To be sure, a new Summary of Economic Projections is likely to show growth forecasts marked down and inflation forecasts marked up, but the focus will be on the all-important ‘dot plot’. December’s median dot signaled just three 2022 rate hikes but at least one more is likely to be added this month. That said, we don’t see the FOMC converging with the 6-7 rate hikes that the market is now pricing for 2022. We also hope to receive more guidance on the start of quantitative tightening; we expect the process to get underway this summer.”

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.”

CIBC

“The Fed will deliver a widely telegraphed quarter-point hike, but its statement will have to sound very hawkish since it needs to justify that move and warn of a lot more to come.”

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.”

Rabobank

“The FOMC is expected to hike by 25 bps. In subsequent meetings (May, June, July) we expect the Committee to continue hiking 25 bps per meeting. However, by the September meeting, the damage from the Ukraine crisis to the global economy may become a threat to the US economic expansion. The doves in the FOMC are likely to jump from the hiking bandwagon by then and demand a pause. Powell could point to the additional benefit of assessing the impact from the initial four hikes, before resuming the hiking cycle.”

ABN Amro

“We and consensus expect a 25bp hike, taking the target range of the fed funds rate to 0.25-0.50%. We expect a total of seven interest rate rises in the course of 2022, as upside risks to inflation outweigh the downside risks to growth stemming from the Russia-Ukraine conflict.”

Nordea

“We expect the Fed to deliver a 25bp hike without making any technical adjustments to the RRP or IOBR rate. We expect the Fed to signal six hikes through its dot plot for 2022, which is likely to be followed by four hikes in 2023, signalling a terminal of 2.50%-2.75%, slightly above the FOMC’s neutral rate estimate of 2.5%. Summary of Economic Projections (SEP) will show higher inflation, lower growth and lower unemployment. The press conference will be a natural venue for the Fed to provide more details on plans for reducing the size of the balance sheet. Yet we do not expect a formal announcement of the balance sheet run-off before May and a beginning in June. We expect the Fed to eventually use its old playbook with monthly run-off caps of US Treasuries and mortgage-backed securities, which are likely to be USD60bn and USD40bn, respectively.”