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ABNAmro Ups Hike Forecast, Sees 3.75-4.00% Rates (And Then Cuts)

FED

ABN Amro has raised its Fed funds rate forecasts: it now expects rates to reach 3.75-4.00% by February 2023, from 0.75-1.00% at present.

  • This implies 300bp of further hikes: 50bp at each meeting between between now and then. "There are three primary reasons for our view change: 1) Persistently strong demand; 2) Persistently elevated inflation; 3) A more hawkish Fed reaction function."
  • However, they also see the Fed cutting in 25bp increments in H2 2023, back down to 2.75-3.00% by the end of 2023.
  • Previously they'd seen the Fed slowing to a 25bp hike pace in September 2022, with a 2.50-2.75% peak in December.
  • "While an unusual profile compared to recent rate cycles, this is more consistent with the kind of cycles we saw in previous high inflation episodes of the 1970s and 1980s, and reflects the fact that the nominal neutral rate moves up and down in line with inflation"
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