Wall Street split on number of Fed hikes

[LONDON] 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 4 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 (Jan 31) 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 4 quarter-point increases in 2022, most now agree the Fed will raise rates in March by 25 basis points, although Nomura Holdings sees the first 50 basis-point salvo since 2000.

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.

A weekend report from economists at Goldman Sachs highlighted the difficulty in predicting the Federal Open Market Committee (FOMC).

"The FOMC could hike fewer than 5 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 5 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

• 7 quarter-point hikes this year, acting at every remaining policy meeting to end 2022 at a range of 1.75 per cent to 2 per cent
• Balance sheet reduction to be announced in May
• 1 hike each quarter in 2023, taking the benchmark to a peak of 2.75 per cent to 3 per cent

Nomura

• 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 per cent to 1.75 per cent
• Balance-sheet runoff will be announced in May, effective June. Quarter-point moves in June and December of 2023

BNP Paribas

• 6 quarter-point hikes this year, at each remaining meeting except November, finishing 2022 at 1.5 per cent to 1.75 per cent
• Balance-sheet runoff will be announced in June, effective July
• Further increases in 2023 to end the year at 2.25 per cent to 2.5 per cent

Goldman Sachs

• 5 quarter-point hikes this year, coming in March, May, July, September and December, to reach 1.25 per cent to 1.5 per cent
• Balance-sheet reduction announced in June
• In 2023, 3 quarter-point hikes, followed by more in 2024 to reach 2.5 per cent to 2.75 per cent

JPMorgan Chase & Co.

• 5 quarter-point hikes this year, coming in March, May, July, November and December, to reach 1.25 per cent to 1.5 per cent
• Balance-sheet reduction announced in June
• 2 hikes at the start of 2023 and then in June to end up at 2.5 per cent to 2.75 per cent

Deutsche Bank AG

• 5 quarter-point hikes this year, coming in March, May and June, then quarterly in the second half, to reach 1.25 per cent to 1.5 per cent
• Balance-sheet reduction announced in July
• 3 hikes in 2023 to leave the rate just above 2 per cent

Wells Fargo Securities

• 5 quarter-point hikes this year, coming in March, May, June, September and December, reaching 1.25 per cent to 1.5 per cent
• Balance-sheet reduction announced in July Another 75 basis points of rate increases in 2023

Citigroup

• 5 quarter-point hikes this year, coming in March, May and June, then quarterly in the second half, to reach 1.25 per cent to 1.5 per cent
• Balance-sheet runoff will be announced in June, effective July
• Quarterly hikes in 2023 to reach 2.25 per cent to 2.5 per cent 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 2 hikes in 2023 to reach 1.5 per cent to 1.75 per cent

Standard Chartered

• 4 consecutive quarter-point hikes forecast for March, May, June and July
• Balance-sheet runoff will be announced in May
• 2 hikes in 2023 to end the year at 1.5 per cent to 1.75 per cent

Barclays

• Continues to forecast hikes in March, June and September, raising the benchmark to 0.75 per cent to 1 per cent
• Balance-sheet runoff will be announced in May
• 3 more hikes in 2023 to reach 1.5 per cent to 1.75 per cent. BLOOMBERG