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Unicredit Ups Hike Forecast 100bp, Eyes Overtightening "Policy Mistake"

FED
Fixed IncomeBulletMarketsEmerging MarketsForeign Exchange

Following the June FOMC meeting, Unicredit now expects a peak in the Funds rate at 3.25-3.50%, which is 100bp higher than their previous forecast. They see 50bp raises in Jul, Sep, and Nov 2022, with a final hike in Dec.

  • That's still below market pricing and overall consensus but "to be sure, we think this will probably constitute overtightening and, hence, a policy mistake. We say this because economic activity is weakening amid a substantial tightening of financial conditions, particularly in the housing market but also for business investment and personal consumption (the latest indication broad-based weakness in May retail sales)."
  • They see the Fed falling behind the curve as inflation declines, just as it was behind the curve when inflation accelerated. They see potential for the Fed starting to cut rates in late 2023.
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Following the June FOMC meeting, Unicredit now expects a peak in the Funds rate at 3.25-3.50%, which is 100bp higher than their previous forecast. They see 50bp raises in Jul, Sep, and Nov 2022, with a final hike in Dec.

  • That's still below market pricing and overall consensus but "to be sure, we think this will probably constitute overtightening and, hence, a policy mistake. We say this because economic activity is weakening amid a substantial tightening of financial conditions, particularly in the housing market but also for business investment and personal consumption (the latest indication broad-based weakness in May retail sales)."
  • They see the Fed falling behind the curve as inflation declines, just as it was behind the curve when inflation accelerated. They see potential for the Fed starting to cut rates in late 2023.