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UBS: Now Seeing 4 2022 Hikes, Though Fed To Aim For H2 Optionality

FED

UBS has changed its view on FOMC tightening, and is now looking for 4 hikes in 2022: Mar, Jun, Sep, Dec (that's up from 3 previously, with the addition being Dec).

  • Following this, they are looking for 2 hikes in each of 2023 and 2024, "because we expect inflation slows to below 2% headed into 2023, the FOMC can take a breath, refocus on the labor market, and pursue a slower path to neutral".
  • They continue to expect balance sheet runoff announced and begun in 1H 2022, "July at the latest"; their central outlook is for a March hike, May runoff announcement, June hike, retaining "desired optionality for the second half of 2022".
  • On risks: "If inflation indicators fail to show signs of moderating as the FOMC hopes, we would expect the Committee to transition from a quarterly pace to an every meeting hike pace, or something in between.... Of course the opposite is true too, and weakness could give the FOMC pause."
  • Note, this view change was made earlier this week, pre-ECB/BOE and Friday US payrolls.
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