Wall Street economists seem to be telling their clients more hawkish than we thought five minutes ago. The strong U.S. consumer inflation data reported Thursday has set off a chain reaction of upward revisions to where the Fed is headed.
Before the Fed's next formal meeting on March 16, many Fed watchers are talking seriously about an interest rate hike.
The consumer price index increased by 0.6% in January, with broad based gains. In the wake of the data, Goldman Sachs now sees seven consecutive 25 basis point rate hikes at each of the remaining Fed policy meetings this year. The investment bank s earlier prediction was five hikes.
Economists at Citi said that their base case was now for a 50 basis point hike in March, followed by quarter point hikes in May, June, September and December.
Marc Cabana, head of the U.S. rates strategy at BofA Securities, told Bloomberg Radio that it is very likely that the Fed will raise rates by 50 basis points in March and maybe even 50 in May. The talk about an inter-meeting rate hike before March 16 erupted late Thursday after St. Louis Fed President James Bullard said he was open to having that discussion.
It is a strange time for the Fed. The central bank is gradually tapering or reducing the amount of securities it is buying under its quantitative easing program, which started in the depth of the pandemic. The purchase of Treasury and mortgage backed securities is expected to end in mid-March.
Some Fed watchers think the Fed may decide to end these purchases cold turkey, with the announcement coming Friday.
The Fed is expected to release its schedule for the last month of asset purchases under the Fed's QE program.
If the Fed releases that calendar at 3 p.m., it's pretty strong forward guidance that they are not going to do an intermeeting hike, said Cabana.
Cabana said he didn't expect a hike before the March 16 meeting. He suggested that investors who want to bet on an intermeeting hike would be better positioned to play for a 75 basis point hike in March.
After a wild week on Wall Street, DJIA, SPX, was expected to open slightly higher. The yield on the 10 year Treasury note TMUBMUSD 10 Y rose above 2%, the highest level since 2019.