BNP: Risk Of Liftoff Before June

BNP stick with their call for rate liftoff in June but see a risk of it coming earlier.

• The Dec FOMC “rubberstamped the hawkish shift made by Chair Powell two weeks ago and completed the turnaround in the Fed’s inflation narrative” with inflation projections and the 2022 dots on the hawkish side.
• The Fed downplayed the Omicron variant threat with projections that imply the expected tightening won’t materially dent the economy, but the Fed might have to become more cautious if Omicron proves a bigger headwind.
• “We stick with our view for a June lift-off, not least due the likely near-term drag from Omicron, but risks are clearly skewed towards an earlier move”.
• “Either way, we expect the Fed to deliver more cumulative tightening than is currently priced into US rates markets”.
• BNP expect QT to start in Mar 2023 with risks of an even earlier move.