ABNAmro Ups 2022 Inflation View, Sees Fed Liftoff In March

ABNAmro sees the details of the December CPI release suggesting "few signs of inflationary relief, with the drag from falling oil and gas prices dwarfed by continued exceptional strength in core goods and services inflation."

• Taking into account such "continued upside surprises to inflation, alongside very strong pipeline pressures from both producer prices and the labour market", ABN has raised their 2022 headline CPI forecast to 4.6% (average) for the year, from 3.9% previously.
• For core PCE, the Fed's preferred measure, ABN now expects 4.1%, vs 2.9% previously, remaining well above the Fed's 2% target and "ultimately settling in a 2.5-3.0% range by early next year". Even so, they believe the risks to these forecasts lie to the upside.
• Against this backdrop they expect the Fed to lift off rates in March (previously saw Jun), and begin winding down the balance sheet in Q2 ("perhaps as soon as May").
• Rate hikes will come quarterly until reaching 1.50-1.75% in mid-2023, then slow to a semi-annual pace to a peak of 2.50-2.75% in 2025.