VIEW: Danske Bank Makes Hawkish Adjustment To Fed Call For ‘22

Danske Bank note that “recent Fed speeches and interviews have been to the hawkish side suggesting the Fed is about to front-load rate hikes in order to ease high underlying inflation pressure by raising the target range quickly back to neutral. We change our Fed call accordingly, as we have argued for a long time that the Fed is behind the curve and it seems like the Fed has come to the same conclusion. We now expect the Fed to deliver 50bp rate hikes in May, June and July. We expect the Fed to hike by 25bp at each of the subsequent meetings in ‘22, implying a Fed funds rate of 2.50-2.75% by year-end. Risk is still skewed towards faster rate hikes and we cannot rule out a larger 75bp rate hike at some point or that the Fed continues hiking by 50bp for longer. Inflation is higher and the labour market tighter than when the Fed hiked by 50bp in 2000 and 75bp in 1994, respectively.”