Morgan Stanley Sees "Front Loading With 50s"

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."