Key takeaways
- 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 following meetings, 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.