VIEW: ANZ: Fed Needs To Get On Front Foot To Tame Inflation

ANZ note that “surging U.S. inflation is becoming broad based, as evidenced by businesses’ increased ability to pass on higher price rises and accelerating wage growth amid an increasingly tight labour market.”

• “Although the Fed’s tolerance for higher inflation has waned and its forward guidance has become more hawkish, it continues to underestimate the breath and duration of intense inflation. The 2022 inflation forecast made at the December meeting implies an unlikely soft landing. We expect the Fed will need to lift those forecasts along with its rate profile.”
• “In response to the strong inflationary pulse, we expect the FOMC will start raising the target range for fed funds in March. We anticipate five 25bp rate hikes this year: 1x25bp in Q1, 2x25bp in Q2 and 1x25bp in each of Q3 and Q4, with three further 25bps hikes next year as inflation eases sharply. Quantitative tightening will also play a role in policy tightening later in the year.”