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TD: 50bp Hikes In May And June, But Fed Won't Hike Much Above Neutral

FED

TD has joined the growing number of sell-side analysts looking for the FOMC to hike rates by 50bp at both the May and June meetings. They then see 25bp hikes at each subsequent 2022 meeting for a total of 225bp of tightening this year.

  • Following that, they see a single 25bp hike in February before the Fed hits a terminal rate of 2.50-2.75%.
  • Their call for a May QT announcement is unchanged, but they had previously seen a total of 150bp of 2022 hikes, and a further 75bp by Jun 2023 to 2.25-2.50%. So, their new terminal rate is a little higher but hiking is seen as significantly more front-loaded.
  • They see the market's current terminal rate pricing (~2.75%) as "fair."
  • "We don't expect the Fed to hike much above neutral since the economy will likely begin to slow due to a combination of fiscal drag, high inflation prints, and higher mortgage and corporate borrowing rates. QT will also tighten financial conditions".
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