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Nomura Calls for 100bp Jul Hike

FED
  • Helping push Fed swaps to pricing a 50% chance of a 100bp hike in July, Nomura economists call for a 100bp hike following the June CPI upside surprise, especially considering one of the major drivers was rent inflation, whilst also noting the BoC’s surprise 100bp hike.
  • They see the choice between 75bp and 100bp in July may still be close for participants but believe 100bp is the right call.
  • When asked about 100bp at the June press conference, Chair Powell noted that “we’re going to react to the incoming data and appropriately.”
  • They see this being followed by 50bp in Sep, 25bp hikes in Nov, Dec and Feb to a peak range of 3.75-4%, 25bp higher than their previous forecast. They then envisage a pause switching to cutting 25bp per meeting from Sep’23 through 2024 to 1-1.25% come end-2024.
  • Risks to their call: 1) Fed continues to hike by larger than 50bp increments for longer. 2) Start of rate cuts will be delayed but will be larger once easing begins.
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