Deutsche Sees 2022 Rate Liftoff On Inflation Pressures

Deutsche brings their Fed hiking call forward to Dec 2022 from Q3 2023, with 3 further hikes in 2023, and 3 more in 2024, to 1.9% at end-2024. They cite "a few reasons" for why the "case for earlier rate increases has become more compelling":

• Supply disruptions leading to inflation pressures are set to persist into 2022, and added to that is higher energy prices. These will bring trend measures of inflation from around the Fed's target currently, to "at least modestly above that objective in the coming months".
• Long-term inflation expectations "are likely to continue to creep higher given their sensitivity to oil prices...Further increases in market measures could undermine an argument against liftoff for some of the Committee's doves, and higher consumer-based measures could make the inflation spike more uncomfortable for Fed leadership."
• Despite recent weaker-than-expected jobs data, "measures of labor market slack continue to outperform".
• Deutsche cautions that "these revised expectations are subject to heightened uncertainty given the extraordinarily unusual economic cycle", including earlier liftoff if inflation and inflation expectations show an "unrelenting uptrend in the coming months", or later liftoff if Powell is not reappointed and the FOMC composition shifts in a "materially more dovish direction".