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Wells Fargo Now Sees 125bp Of Tightening This Year

FED

Wells Fargo now thinks it's likely the FOMC will hike rates by 25bp five times in 2022: in March, May, June, September, and December 2022. Previously they'd seen 4 hikes/100bp, including a a pause in May.

  • They continue to look for 75bp of hikes in 2023.
  • In addition, they have pulled forward their expectations for QT: they now see balance sheet runoff announced in July (previously: September). This would be followed by runoff ramping up to monthly caps of $100B ($70B Tsy / $30B MBS) by Jan 2023 (vs March previously expected), maintaining that pace through 2024.
  • "We expect the more gradual pace of rate hikes in the second half of the year to be warranted by deceleration in spending and in some slowing in the rate of inflation, as well as by balance sheet runoff getting up to full speed."
  • As we noted in our review of the January FOMC meeting out yesterday, the 2022 market/analyst base case is shifting to 4-to-5 hikes, with QT beginning in mid-year, vs pre-meeting when it was 3-to-4, with QT beginning in Q3.
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