VIEW: Nomura: Powell Testimony Supports Our Out-of-Consensus Call For 50bp March Hike

Nomura note that “Powell officially opened up the door for a 50bp rate hike, which is consistent with our call. Although we maintain our Fed call for a 50bp rate hike in March followed by two more 25bp rate hikes in May and June to a terminal rate of 5.50-5.75%, the renewed hawkishness in Powell’s testimony poses a risk of more tightening than we currently expect. In particular, there is a real risk of the 2023 median dot being revised up to 5.875%, depending on upcoming data.”

• “In addition, we think there is an increased likelihood of the FOMC modifying the Fed’s balance sheet runoff policy. As discussed recently, the impact of cumulative rate hikes by the Fed is disproportionately affecting bank loans, leading to significant tightening of lending standards, higher loan delinquency rates and limited supply of credit to households and businesses. Conversely, risk asset markets remained very accommodative, which likely boosted affluent households’ continued spending due to the wealth effect.”