RBC: A Different Path To The Same Dec 2023 Rate

RBC acknowledge risks to their call for 2 hikes in 2022 but see the same cumulative 6 hikes by end-2023.

• The Fed delivered its expected hawkish tilt and more, “looking past Omicron uncertainty and unveiling a surprisingly hawkish dot plot that shows most committee members expect 3 rate hikes next year”.
• That is above RBC’s forecast for 2 hikes in 2022 and slightly ahead of what was priced beforehand, notable in contrast to elsewhere where rate hike expectations are well ahead of central bank guidance.
• Faster taper “clearly opens the door to a Q2 rate hike rather than the Q3 liftoff we've been expecting”.
• Inflation developments and an improving labour market backdrop were behind the decision to accelerate taper, a “particularly remarkable” pivot given the cautiousness in laying the tapering groundwork.
• Chair Powell noted the “rapid progress toward maximum employment” and all committee members see that test being met next year.
• However, “while today’s hawkish tone suggests clear risk of earlier liftoff than we’ve been anticipating, the 150 bps of rate hikes we expect in the next two years aligns with the committee’s median”.