After last week’s interest rate decision and the subsequent press conference, it was clear that interest rates would remain as they are for the time being and that the QE program is to be phased out in March. Fed Chairman Powell sees some room for interest rate hikes, as the situation on the labor market and in the economy looks promising. In addition, Powell spoke of the reduction of the balance sheet in the background.
The Fed wants to use it to fight inflation, which is now far above the target inflation of 2%. Thus, the Fed probably now finally admits that it is far behind the curve. In December, the inflation rate rose by 7%, the highest increase for almost 40 years.
This was followed by wild guesses as to how many times the Fed will raise interest rates this year.
The Bank of America is currently talking about 7 interest rate hikes this year. All seven interest rate increases should be 25 basis points and in March, the first increase should take place.
Deutsche Bank now expects the Fed to implement a total of 5 rate hikes. Raise rates at each meeting from March through June. After that, they are to be raised only quarterly.
Goldman Sachs specialists expect the Fed to raise rates in March and May and begin reducing its balance sheet in June, followed by more rate hikes in July and September. After that, rate hikes are expected to take place quarterly to stand at 1.25-1.5% at the end of the year
Jamie Dimon CEO of JPMorgan would not be surprised if the Fed raised rates 6-7 times this year. He expects the Fed to try to fight inflation more aggressively.
BNP Paribas expects 6 rate hikes of 25 basis points each. At the end of 2023, interest rates are expected to stand at 2.25% to 2.5%.
We’ll have to wait until March to see if the Fed finally starts raising interest rates, or if it’s just bluffing, keeping rates low and continuing to pump cheap money into the markets.