Deutsche: Raising 2022 Hike View To 5 From 4

Deutsche now sees 5 25bp Fed rate hikes in 2022 (vs 4 previously) in light of Powell’s emphasis of a “nimble policy response” that “heightens the importance of evidence that inflation pressures are waning”.

• In other words, “in the absence of clear evidence in support of [waning inflation pressures], we think the Fed tightens at each meeting” from March through June, returning to a quarterly hiking profile before year-end “as they see clearer evidence of falling inflation”.
• Rest of views largely unchanged: continue to see 3 2023 hikes (terminal rate 2.00-2.25%), and QT caps released in May, followed by official QT announcement in July.
• “the implication at this meeting was that the pace of rate tightening post-liftoff could well be faster than during the last cycle”.
• Re hiking at every meeting, and/or 50bp increments, “While [Powell] was clear that the Committee has not made these decisions – and he did not rule out these scenarios – it was evident that the different starting point implies a much higher probability of these more aggressive decisions”.
• Deutsche notes the new “principles” on balance sheet reduction were identical to the Sep 2014 edition.