Expectations of more than three U.S. rate hikes this year build

A growing number of Fed officials and Wall Street economists are opening the door to three more rate hikes this year than expected as the central bank struggles to contain soaring inflation.

Senior policy makers and private sector forecasters are “lift offf”’s main policy rate started from zero as early as the March policy meeting. They cited new evidence that inflation – running The highest pace in nearly 40 years — broad and rising — is a further sign that the labor market is recovering rapidly.

But over the past week — during which Chairman Jay Powell said inflation constituted “serious threat“By the time the economy recovers — support for the Fed to act more aggressively after that — has grown.

“The Fed has been too slow to get back to normal for a dynamic economy,” said David Kelly, chief global strategist at JPMorgan Asset Management. “It’s reasonable that we’ll see more than three rate hikes.”

Last month, individual rate forecasts released by FOMC members and regional chapter chairs pointed to three quarter-point increases in the federal funds rate in 2022. Now, expectations for four or more rate hikes are starting to heat up.

While Fed Governor Christopher Waller said the three adjustments this year are still a “good benchmark,” he suggestion On Thursday, if inflation remains high, four or even five rate hikes may be appropriate.

Waller, seen as one of the most hawkish members of the FOMC, was joined by James Bullard of the St. Louis Fed, who has long supported the Fed’s strong action in response to soaring consumer prices. Brad is a voting member of this year’s Policy Development Committee, Say On Wednesday, he now thinks the central bank should raise interest rates four times in 2022.

Other Fed officials have also expressed their willingness to support a more rapid tapering of the Fed’s easing, with Patrick Harker, president of the Fed’s Philadelphia branch, saying, Tell The Financial Times said this week that he was open to more than three rate hikes this year if inflation figures he described as “very bad” got worse.

Charles Evans of the Chicago Fed added that if inflation data does not improve “fast enough”, four adjustments may be needed.

Wall Street economists have followed suit, adjusting their forecasts for the Fed’s policy trajectory this year.

Morgan Stanley on Thursday raised its forecast for rate hikes this year to four 25 basis points, which senior U.S. economist Robert Rosener said reflected the Fed “is looking to be flexible with the data.”

Wells Fargo chief economist Jay Bryson similarly raised his forecast, warning that “over the course of the year, the Fed will continue to be surprised by headline inflation.”

Economists at Goldman Sachs and RBC Capital Markets also made four adjustments. JPMorgan Chief Executive Jamie Dimon said during Friday’s debate that he sees a “very good chance” that there will be more than four moves, possibly six or seven.

“I think this whole concept is somehow going to be sweet and tame, and nobody’s going to be surprised that it was a mistake,” he said on the bank’s fourth-quarter earnings call.

Senior officials are also debating how quickly to begin shrinking the $9 trillion balance sheet, with many policymakers agreeing to shrink quickly after the first rate hike.

More details on the exact pace will be discussed at a subsequent policy meeting, but New York Fed President John Williams said on Friday he supported a “predictable” process that would not be “disruptive” to financial markets, And “won’t” not require a lot of tweaking in the process”.

This week, Atlanta Fed President Rafael Bostic became The first official to speak the numbers called for a reduction of the central bank’s securities portfolio by at least $100 billion a month.

Additional reporting by Joshua Franklin in New York

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