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Morgan Stanley Sees "Front Loading With 50s"

FED

Morgan Stanley now expects the Fed to hike rates by 50bp at each of the May and June meetings, and 25bp at the 4 remaining 2022 meetings for an end-year rate of 2.25-2.50%. They then see three further 25bp hikes in 2023, to a terminal 3.00-3.25% rate.

  • The new end-2022 call is 75bp higher than their previous view (of 1.50-1.75%), while their revised 2023 view subtracts a single 25bp hike (from 100bp to 75bp).
  • They've also revised down their GDP forecasts (by 0.3pp to 4.0% in 2022, and 0.4pp to 2.6% in 2023), as front-loaded hiking policy puts pressure on financial conditions.
  • While they see potential for faster or slower tightening, they also note that "after hitting a peak next year, we could see the Fed quickly shift to cut rates by 2024 as policymakers look to recalibrate off a restrictive policy stance as both growth and inflation moderate."
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