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Bank of America and Goldman Sachs maintain their predictions that the U.S. Federal Reserve will boost interest rates up to seven times this year, even though the word on The Street is that because of the economic damage wrought by Russia’s attack on Ukraine—the rate raises will be slowed.
The two banks still predict that the Fed’s benchmark rate will climb from its current 0.25 percent to 2 percent by the end of this calendar year.
In contrast, JPMorgan Chase does not see the Fed pegging rates at that level until early 2023.
“The underlying rationale for normalization [of interest rates] hasn’t yet changed,” Praveen Korapathy, a strategist at Goldman Sachs, told Bloomberg.
“If all we get is a small hit to growth and still elevated inflation, it makes the Fed’s trade-off worse, but I don’t think it would get them to sit on their hands,” he said.
Futures traders and other players are now betting that the central bank will push rates no higher than 1.7 percent this year, Bloomberg reported.
Blackrock Investment Institute and TD Securities are among market players reining back their expectations.
“A protracted stand-off between Russia and the West…has reduced the risk of central banks slamming the brakes to contain inflation,” Blackrock wrote in a 1 March note to clients.
NatWest Markets said Wednesday it was stopped out of “core strategic investment stances” and had exited money-market positions that were premised on a steeper path of hikes.
“Given the Fed’s twin goals of maximum employment and price stability, most market participants have lowered their expectations of the cumulative number of interest rate hikes—not just for 2022, but beyond,” NatWest Markets analysts said in a 1 March research note.
TREND FORECAST: The number and size of the Fed’s rate hikes will not be dictated by the pace of inflation and its effects on U.S. jobs and gross domestic product.
One of the key lessons in trends forecasting is that no one can predict the future. There are too many wildcards, be they man made or made by nature. The Ukraine War is a wildcard that has changed the course of history. Therefore, we forecast the Fed will be unable or unwilling, or both, to raise interest rates enough, or quickly enough, to slow inflation significantly in the near term. It can only play a losing game of catch-up until the Ukraine war settles and a clearer view into the future is seen.