BNP Paribas: How Many 50bp Hikes Will Powell Tee Up?

BNP expects the Fed to hike 50bp and officially announce balance sheet runoff at the May meeting. Powell’s could guide on moving rates to/above neutral this year.

• Statement: Could telegraph preference to front-load 50bp hikes with hinting at, for example, an “expedited pace” of rate increases.
• Press conference: Powell will likely "communicate an increasing preference for a front-loaded rate hiking cycle. Expect him to reiterate the prioritization of price over activity data to drive policy." BNP sees potential Powell guidance on preconditions warranting a downshift back to a 25bp pace “could signal upside risks” to a core scenario of 50bp hikes in just May and June, “if he ties the downshift to improvements in inflation and labor market data (which we do not expect until later in the year at best), or similarly if he links it to reaching a neutral policy stance.”
• Powell “could provide information that could come more explicitly in the meeting minutes that reveals officials’ increasing willingness to go above neutral this year”.
• Future action: 225bp of hikes this year, including 50bp in June, but risks tilt toward more 50bp moves. QT risks are “asymmetric”, tilting toward slower pace.