Banks scramble to change Fed rate calls after hawkish shift

[SINGAPORE] Strategists at the world's top investment banks scrambled to change their Federal Reserve rate calls on Thursday (Jan 27) after policymakers emphasised at a policy meeting that it would continue to tighten policy to clamp down on inflation.

The Federal Reserve on Wednesday said it was likely to hike interest rates in March and reaffirmed plans to end its bond purchases that month, surprising investors who had already braced for as many as 4 rate hikes until the end of the year.

Analysts at Nomura, Japan's biggest brokerage and investment bank, said they expect the US Federal Reserve to hike its benchmark rate by 50 basis points (bps) in March.

BNP Paribas expects as much as 6 25 bps hikes in 2022 from 4 earlier, and expects the fed funds target range at 2.25-2.50 per cent at end-2023, 25 bps higher than a previous forecast.

"Our new base case for 6 hikes this year poses challenges to our bullish outlook for US equities," the French bank's strategists said in a note.

Fed chair Jerome Powell did not rule out such a move when asked about it after Wednesday's Fed meeting.

"He repeatedly appeared to differentiate the upcoming hiking cycle from the last time the Fed normalised its policy rate at a roughly quarterly pace," Nomura's analysts said in a note.

"We now expect a 50 bp rate hike at the March (Fed) meeting, followed by three consecutive 25 bp hikes in May, June and July," they said, adding that another 25 bp hike was expected in December. REUTERS